SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE COMPANY

The selected financial and other data of the Company set forth below is
derived in part from, and should be read in conjunction with, the Financial
Statements of the Company and Notes thereto presented elsewhere in this Annual
Report.

|                                   |                               |  |                 |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|---------------------------------- | ----------------------------- |  | --------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                   |                               |  | At December 31,
|                                   |                               |  |                
|                                   |                               |  | 1999            |        | 1998 |  | 1997 |        | 1996 |  | 1995
|                                   |                               |  |                 |        |      |  |      |        |      |  |     
|                                   |                               |  | (In thousands) 
|Selected Financial Condition Data:
|                                  
|                                  
|                                  
|                                  
|                                   | Total assets                  |  | $               | 75,984 |      |  | $    | 55,089 |      |  | $    | 51,509 |  |  | $ | 47,074 |  |  | $ | 43,149 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Total liabilities             |  |                 | 71,204 |      |  |      | 47,943 |      |  |      | 44,544 |  |  |   | 39,805 |  |  |   | 39,301 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Loans, net(1)                 |  |                 | 65,045 |      |  |      | 38,528 |      |  |      | 39,002 |  |  |   | 37,495 |  |  |   | 33,384 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Mortgage-backed securities(2) |  |                 | 4,759  |      |  |      | 8,910  |      |  |      | 5,796  |  |  |   | 1,148  |  |  |   | 1,083  | 
|                                  
|                                  
|                                  
|                                  
|                                   | Cash and cash equivalents     |  |                 | 738    |      |  |      | 2,351  |      |  |      | 664    |  |  |   | 1,115  |  |  |   | 1,249  | 
|                                  
|                                  
|                                  
|                                  
|                                   | Investments(2)(3)             |  |                 | 4,311  |      |  |      | 4,306  |      |  |      | 5,089  |  |  |   | 6,687  |  |  |   | 6,639  | 
|                                  
|                                  
|                                  
|                                  
|                                   | Deposits                      |  |                 | 39,436 |      |  |      | 33,067 |      |  |      | 31,867 |  |  |   | 32,551 |  |  |   | 33,669 | 
|                                  
|                                  
|                                  
|                                  
|                                   | Borrowings                    |  |                 | 31,139 |      |  |      | 14,440 |      |  |      | 12,287 |  |  |   | 7,012  |  |  |   | 5,343  | 
|                                  
|                                  
|                                  
|                                  
|                                   | Stockholders equity(4)       |  |                 | 4,780  |      |  |      | 7,147  |      |  |      | 6,965  |  |  |   | 7,270  |  |  |   | 3,848  | 

|                         |                                    |                                                     |   |                                |       |      |   |       |       |      |   |       |       |  |   |       |       |  |   |       |       | 
|------------------------ | ---------------------------------- | --------------------------------------------------- | - | ------------------------------ | ----- | ---- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                         |                                    |                                                     |   | Fiscal Year Ended December 31,
|                         |                                    |                                                     |   |                               
|                         |                                    |                                                     |   | 1999                           |       | 1998 |   | 1997  |       | 1996 |   | 1995 
|                         |                                    |                                                     |   |                                |       |      |   |       |       |      |   |      
|                         |                                    |                                                     |   | (In thousands)                
|Selected Operating Data:
|                        
|                        
|                        
|                        
|                         | Interest income                    |                                                     | $ | 4,458                          |       |      | $ | 3,869 |       |      | $ | 3,543 |       |  | $ | 3,336 |       |  | $ | 2,981 |      
|                        
|                        
|                        
|                        
|                         | Interest expense                   |                                                     |   | 2,940                          |       |      |   | 2,368 |       |      |   | 2,029 |       |  |   | 1,946 |       |  |   | 1,848 |      
|                         |                                    |                                                     |   |                                |       |      |   |       |       |      |   |       |       |  |   |       |       |  |   |      
|                         |                                    | Net interest income                                 |   |                                | 1,518 |      |   |       | 1,501 |      |   |       | 1,514 |  |   |       | 1,390 |  |   |       | 1,133 | 
|                        
|                        
|                        
|                        
|                         | Provision (credit) for loan losses |                                                     |   | 40                             |       |      |   | 18    |       |      |   | 10    |       |  |   |      |       |  |   | (2    | )    
|                         |                                    |                                                     |   |                                |       |      |   |       |       |      |   |       |       |  |   |       |       |  |   |      
|                         |                                    | Net interest income after
provision for loan losses |   |                                | 1,478 |      |   |       | 1,483 |      |   |       | 1,504 |  |   |       | 1,390 |  |   |       | 1,135 | 
|                        
|                        
|                        
|                        
|                         | Non-interest income                |                                                     |   | 236                            |       |      |   | 292   |       |      |   | 131   |       |  |   | 153   |       |  |   | 102   |      
|                        
|                        
|                        
|                        
|                         | Non-interest expense               |                                                     |   | 1,781                          |       |      |   | 1,441 |       |      |   | 1,321 |       |  |   | 1,276 |       |  |   | 1,198 |      
|                         |                                    |                                                     |   |                                |       |      |   |       |       |      |   |       |       |  |   |       |       |  |   |      
|                         | Income (loss) before income taxes  |                                                     |   | (67                            | )     |      |   | 334   |       |      |   | 314   |       |  |   | 267   |       |  |   | 39    |      
|                        
|                        
|                        
|                        
|                         | Income taxes                       |                                                     |   | (14                            | )     |      |   | 120   |       |      |   | 119   |       |  |   | 81    |       |  |   | 10    |      
|                         |                                    |                                                     |   |                                |       |      |   |       |       |      |   |       |       |  |   |       |       |  |   |      
|                         |                                    | Net income (loss)                                   |   | $                              | (53   | )    |   | $     | 214   |      |   | $     | 195   |  |   | $     | 186   |  |   | $     | 29    | 
|                         |                                    |                                                     |   |                                |       |      |   |       |       |      |   |       |       |  |   |       |       |  |   |      

(continued on next page)

- 2 -



---



|                                          |                                                                         |  |                                       |        |      |  |      |        |      |  |      |        |   |  |  |        |   |  |  |        |  
|----------------------------------------- | ----------------------------------------------------------------------- |  | ------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | - |  |  | ------ | -
|                                          |                                                                         |  | At or For the Year Ended December 31,
|                                          |                                                                         |  |                                      
|                                          |                                                                         |  | 1999                                  |        | 1998 |  | 1997 |        | 1996 |  | 1995
|                                          |                                                                         |  |                                       |        |      |  |      |        |      |  |     
|Selected Financial Ratios and Other Data:
|                                         
|                                         
|                                         
|                                         
|Performance Ratios(5):                   
|                                         
|                                         
|                                         
|                                         
|                                          | Return on average assets                                                |  |                                       | (0.08  | )%   |  |      | 0.39   | %    |  |      | 0.41   | % |  |  | 0.41   | % |  |  | 0.07   | %
|                                         
|                                         
|                                         
|                                         
|                                          | Return on average equity                                                |  |                                       | (0.92  | )    |  |      | 3.05   |      |  |      | 2.71   |   |  |  | 3.34   |   |  |  | 0.77   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Average equity to average assets                                        |  |                                       | 8.72   |      |  |      | 12.95  |      |  |      | 14.96  |   |  |  | 12.17  |   |  |  | 9.11   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Equity to total assets at year end                                      |  |                                       | 6.29   |      |  |      | 12.97  |      |  |      | 13.52  |   |  |  | 15.44  |   |  |  | 8.92   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Average interest rate spread(6)                                         |  |                                       | 2.08   |      |  |      | 2.26   |      |  |      | 2.55   |   |  |  | 2.72   |   |  |  | 2.49   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Net interest margin(7)                                                  |  |                                       | 2.38   |      |  |      | 2.84   |      |  |      | 3.22   |   |  |  | 3.15   |   |  |  | 2.82   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Average interest-earning assets to
average interest-bearing liabilities |  |                                       | 106.60 |      |  |      | 112.91 |      |  |      | 115.64 |   |  |  | 109.84 |   |  |  | 107.19 |  
|                                         
|                                         
|                                         
|                                         
|                                          | Non-interest expense to average assets                                  |  |                                       | 2.18   |      |  |      | 2.65   |      |  |      | 2.75   |   |  |  | 2.79   |   |  |  | 2.88   |  
|                                         
|                                         
|                                         
|                                         
|Regulatory Capital Ratios(5):            
|                                         
|                                         
|                                         
|                                         
|                                          | Tier 1 leverage                                                         |  |                                       | 6.4    |      |  |      | 11.5   |      |  |      | 11.9   |   |  |  | 11.7   |   |  |  | 8.9    |  
|                                         
|                                         
|                                         
|                                         
|                                          | Total capital to risk-weighted capital                                  |  |                                       | 12.0   |      |  |      | 24.2   |      |  |      | 23.8   |   |  |  | 24.1   |   |  |  | 17.7   |  
|                                         
|                                         
|                                         
|                                         
|Asset Quality Ratios(5):                 
|                                         
|                                         
|                                         
|                                         
|                                          | Non-performing assets as a percent
of total assets(8)                   |  |                                       | 0.07   |      |  |      | 0.10   |      |  |      | 0.34   |   |  |  | 0.23   |   |  |  | 0.21   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Non-performing loans as a percent
of gross loans(8)(9)                  |  |                                       | 0.08   |      |  |      | 0.14   |      |  |      | 0.45   |   |  |  | 0.29   |   |  |  | 0.27   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Allowance for loan losses as a percent
of gross loans(9)                |  |                                       | 0.14   |      |  |      | 0.17   |      |  |      | 0.17   |   |  |  | 0.15   |   |  |  | 0.18   |  
|                                         
|                                         
|                                         
|                                         
|                                          | Allowance for loan losses as a percent
of non-performing loans (8)      |  |                                       | 173.08 |      |  |      | 122.22 |      |  |      | 37.93  |   |  |  | 53.21  |   |  |  | 66.87  |  



---

|(1) |  | The allowance for loan losses at December 31, 1999, 1998, 1997, 1996 and
1995 was (in thousands) $90, $66, $66, $58 and $60, respectively.                                                                                                                                                                                                           
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | The Banks investments and mortgage-related securities were classified as
available for sale at December 31, 1996. The Bank adopted Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities on January 1, 1994. See
Footnote 1 to the Financial Statements of the Company.
|   
|   
|   
|   
|(3) |  | Includes FHLB stock and certificates of deposit.                                                                                                                                                                                                                                                                                                     
|   
|   
|   
|   
|(4) |  | Consists solely of retained earnings at December 31, 1995.                                                                                                                                                                                                                                                                                           
|   
|   
|   
|   
|(5) |  | Asset Quality Ratios and Regulatory Capital Ratios are end of year
ratios. With the exception of end of year ratios, all ratios are based on
average monthly balances.                                                                                                                                                                               
|   
|   
|   
|   
|(6) |  | The interest rate spread represents the difference between the
weighted-average yield on interest-earning assets and the weighted-average
cost of interest-bearing liabilities.                                                                                                                                                                      
|   
|   
|   
|   
|(7) |  | The net interest margin represents net interest income as a percent of
average interest-earning assets.                                                                                                                                                                                                                                              
|   
|   
|   
|   
|(8) |  | Non-performing assets consist of loans 90 days or more overdue and not
accruing interest.                                                                                                                                                                                                                                                            
|   
|   
|   
|   
|(9) |  | Gross loans include loans, less loans in process, allowance for loan
losses and deferred loan origination fees.                                                                                                                                                                                                                                      

- 3 -



---



MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Lenox Bancorp, Inc. (the Company) does not transact any material
business other than through its wholly owned subsidiary, Lenox Savings Bank
(the Bank). The Banks results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
its interest-earning assets, such as loans and investments, and the interest
expense on its interest-bearing liabilities, such as deposits and borrowings.
The Bank also generates non-interest income, such as service fee income. The
Banks general, administrative and other expenses primarily consist of employee
compensation, occupancy and equipment expense, franchise taxes, federal deposit
insurance premiums and other operating expenses. The Banks results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government policies
and action of regulatory agencies. The Bank exceeded all of its regulatory
capital requirements at December 31, 1999.

The following pages provide an overview of the general business and
financial condition as of December 31, 1999, and results of operation for
fiscal 1999, as compared to 1998 and 1997. In addition to this historical
information, the following discussion contains forward-looking statements that
involve risks and uncertainties. Economic circumstances, the Banks operations
and actual results could differ significantly from those discussed in the
forward-looking statements. Some of the factors that could cause or contribute
to such differences are discussed herein but also include changes in the
economy and interest rates in the nation and in the Banks general market area.

The forward-looking statements contained herein include, but not limited
to, those with respect to the following matters.



| |                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. Managements analysis of the interest rate risk of the Bank as set
forth under Asset and Liability Management.                                                                                                                                                                             
|
| | 2. Managements determination of the amount of the allowance for loan
losses as set forth under Comparison of Operating Results for the
Years Ended December 31, 1999 and December 31, 1998 and Comparison of
Operating Results for the Years Ended December 31, 1998 and December
31, 1997.
|
| | 3. Managements discussion of the liquidity of the Banks assets and
the regulatory capital of the Bank as set forth under Liquidity and
Capital Resources.                                                                                                                                   

Asset and Liability Management

In managing its interest rate risk the Bank makes every effort to provide
a more equal match between the maturity of its liabilities and the maturity or
repricing of its assets. In monitoring this process the Bank regularly
conducts a comprehensive analysis of its balance sheet. The Bank utilizes a
discounted cash flow analysis arriving at a mark-to-market comparison of assets
and liabilities to book values and in calculating the net present value of the
Banks equity position. The net present value is the present value of expected
cash flows from assets, liabilities and off-balance sheet contracts. The
primary focus is on managing market value and total return. The Bank uses a
model which internally generates estimates of the changes in the Banks net
portfolio value over a range of interest rate scenarios. In addition, but to a
much lesser degree, the Bank will review its asset-liability gap position as an
indication of how it is faring on matching its assets/liability
maturity-repricing profile.

For purposes of the following net portfolio value table all
mortgage-backed securities and mortgages secured by one- to four-family
residences are assumed to prepay at various constant prepayment rates, which were
chosen based upon a consensus of prepayment rates that apply to various
weighted average maturities and which are published by the larger brokerage
houses who deal in mortgage-backed and related securities. Lines of credit
reprice monthly, and consumer loans are based on amortized balances.
Additionally, all variable rate deposit accounts assume a 25% decay rate with
the remainder due in the tenth year for all periods. The liability assumptions
for variable rate deposit accounts were derived partly from industry
methodology standards of valuing core deposits and a blend of the Banks own
historical experience. Management believes that all of the above assumptions
are reasonable.

- 4 -



---



Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurements. Modeling changes in net portfolio value
require the making of certain assumptions which may or may not reflect the
manner in which actual yields and costs respond to changes in market interest
rates. In this regard, the net portfolio value model presented assumes that
the composition of the Banks interest sensitive assets and liabilities
existing at the beginning of a period remains constant over the period being
measured and also assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities. Accordingly,
although the net portfolio value table provides an indication of the Banks
interest rate risk exposure at a particular point in time, such measurements
are not intended to and do not provide a precise forecast of the effect of
changes in market interest rates on the Banks net interest income and will
differ from actual results.

The following table sets forth the Banks net portfolio value as of
December 31, 1999. As it shows, increases in interest rates will result in net
decreases in the Banks net portfolio value, while decreases in interest rates
will result in smaller net increases in the Banks net portfolio value.

|                |        |                     |                        |          |  |          |   |        |   |            |  |        |    |                 |                       |      |   |  |  |      |  
|--------------- | ------ | ------------------- | ---------------------- | -------- |  | -------- | - | ------ | - | ---------- |  | ------ | -- | --------------- | --------------------- | ---- | - |  |  | ---- | -
|                |        |                     |                        |          |  |          |   |        |   |            |  |        |    |                 | NPV as % of Portfolio
|Change in       |        |                     |                        |          |  |          |   |        |   |            |  |        |    | Value of Assets
|Interest Rates  |        | Net Portfolio Value |                        |         
|In Basis Points |        |                     |                        | NPV     
|(Rate Shock)    |        | Amount              |                        | $ Change |  | % Change |   | Ratio  |   | Change (1)
|                |        |                     |                        |          |  |          |   |        |   |           
|                |        |                     | (Dollars in Thousands)
|                | 200    |                     | $                      | 796      |  |          | $ | (1,979 | ) |            |  | (71.32 | )% |                 |                       | 0.97 | % |  |  | 2.59 | %
|               
|               
|               
|               
|                | 100    |                     |                        | 1,915    |  |          |   | (860   | ) |            |  | (30.98 | )  |                 |                       | 2.48 |   |  |  | 1.08 |  
|               
|               
|               
|               
|                | Static |                     |                        | 2,775    |  |          |   |       |   |            |  |       |    |                 |                       | 3.56 |   |  |  |     |  
|               
|               
|               
|               
|                | (100)  |                     |                        | 3,172    |  |          |   | 397    |   |            |  | 14.30  |    |                 |                       | 3.99 |   |  |  | 0.43 |  
|               
|               
|               
|               
|                | (200)  |                     |                        | 3,115    |  |          |   | 340    |   |            |  | 12.25  |    |                 |                       | 3.88 |   |  |  | 0.11 |  



---

|(1) |  | Expressed in basis points.
|--- |  | --------------------------

The matching of the repricing characteristics of assets and liabilities
may be analyzed by examining the extent to which such assets and liabilities
are interest rate sensitive and by monitoring an institutions interest rate
sensitivity gap. An asset or liability is said to be interest rate sensitive
within a specific time period if it matures or reprices within that time
period. The interest rate sensitivity gap is defined as the difference between
the amount of interest-earning assets anticipated, based upon certain
assumptions, to mature or reprice within a specific time period and the amount
of interest-bearing liabilities anticipated, based upon certain assumptions, to
mature or reprice within that time period. At December 31, 1999, the Companys
cumulative interest rate gap (which is the difference between the amount of
interest-earning assets maturing or repricing within the year and
interest-bearing liabilities maturing or repricing within one year) as a
percentage of total assets was a negative 1.43%. A gap is considered positive
when the amount of interest rate sensitive assets exceed the amount of interest
rate sensitive liabilities maturing or repricing within a specific time frame.
A gap is considered negative when the amount of interest rate sensitive
liabilities exceed the amount of interest rate sensitive assets maturing or
repricing within that same time frame. Accordingly, in a rising interest rate
environment, an institution with a negative gap would not be in as favorable a
position, as compared to an institution with a positive gap, to invest in
higher yielding assets. This may result in the yield on its assets increasing
at a slower pace than the increase in the cost of its interest-bearing
liabilities. During a period of falling interest rates, an institution with a
negative gap would tend to have its assets repricing at a slower rate than its
interest-bearing liabilities, which consequently, may result in its net
interest income growing at a faster rate then an institution with a positive
gap.

- 5 -



---



Average Balance Sheet

The following table sets forth certain information relating to the Bank at
December 31, 1999 and for the years ended December 31, 1999, 1998 and 1997.
The yields and costs are derived by dividing income or expense by the average
balance of assets or liabilities, respectively, for the periods shown except
where noted otherwise. Average balances are derived from average month-end
balances. Management does not believe that the use of average monthly balances
instead of average daily balances has caused a material difference in the
information presented. The yields and costs include fees which are considered
adjustments to yields.

|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |   |      |      | 
|---------------------------------------------------------------- | -------------------------------- | -------------------------- | ---------------------------------- | ----- | ---------------------- | ------ | ------ | - | ------- | ---- | -------- | ----- | ------ | ------ | ------- | - | -------- | ----- | ------- | - | ---- | ---- | ----- | ----- | ------ | ------ | ----- | - | ------- | ----- | ------ | - | ---- | ---- | 
|                                                                 |                                  |                            |                                    |       | At December 31,       
|                                                                 |                                  |                            |                                    |       | 1999                   |        | 1999   |   | 1998   
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |        
|                                                                 |                                  |                            |                                    |       |                        |        |        |   | Average |      |          |       |        |        |         |   |          |       | Average |   |      |      |       |       |        |        |       |   | Average
|                                                                 |                                  |                            |                                    |       |                        |        |        |   | Yield/  |      | Average  |       |        |        |         |   | Yield/   |       | Average |   |      |      |       |       | Yield/
|                                                                 |                                  |                            |                                    |       | Balance                |        | Cost   |   | Balance |      | Interest |       | Cost   |        | Balance |   | Interest |       | Cost   
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |        
|                                                                 |                                  |                            |                                    |       | (Dollars in thousands)
|Assets:                                                         
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Interest-earning assets:        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  | Interest-bearing deposits  |                                    | $     | 132                    |        |        |   | 3.77    | %    |          | $     | 490    |        |         | $ | 23       |       |         |   | 4.69 | %    |       | $     | 2,682  |        |       | $ | 103     |       |        |   | 3.84 | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  | Investments                |                                    |       | 4,311                  |        |        |   | 6.54    |      |          |       | 4,142  |        |         |   | 267      |       |         |   | 6.45 |      |       |       | 3,983  |        |       |   | 268     |       |        |   | 6.73 |     
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  | Mortgage-backed securities |                                    |       | 4,759                  |        |        |   | 6.67    |      |          |       | 6,307  |        |         |   | 363      |       |         |   | 5.76 |      |       |       | 8,480  |        |       |   | 537     |       |        |   | 6.33 |     
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  | Loans receivable, net      |                                    |       | 65,045                 |        |        |   | 7.60    |      |          |       | 52,879 |        |         |   | 3,805    |       |         |   | 7.20 |      |       |       | 37,777 |        |       |   | 2,961   |       |        |   | 7.84 |     
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  |                            | Total interest-earning assets      |       |                        | 74,247 |        |   |         | 7.47 |          |       |        | 63,818 |         |   |          | 4,458 |         |   |      | 6.99 |       |       |        | 52,922 |       |   |         | 3,869 |        |   |      | 7.31 | 
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Non-interest-earning assets      |                            |                                    | 1,737 |                        |        |        |   |         |      |          | 2,194 |        |        |         |   |          |       |         |   |      |      |       | 1,355 |        |        |       |   |         |       |        |   |     
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|                                                                 |                                  |                            | Total assets                       |       | $                      | 75,984 |        |   |         |      |          |       |        | 66,012 |         |   |          |       |         |   |      |      |       |       | $      | 54,277 |       |   |         |       |        |   |      |      | 
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|Liabilities and Equity:                                         
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Interest-bearing liabilities:   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  | Deposits                   |                                    | $     | 39,436                 |        |        |   | 4.81    | %    |          | $     | 37,702 |        |         | $ | 1,731    |       |         |   | 4.59 | %    |       | $     | 32,471 |        |       | $ | 1,556   |       |        |   | 4.79 | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  | FHLB advances              |                                    |       | 31,139                 |        |        |   | 5.91    |      |          |       | 22,162 |        |         |   | 1,208    |       |         |   | 5.45 |      |       |       | 14,401 |        |       |   | 812     |       |        |   | 5.64 |     
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|                                                                 |                                  |                            | Total interest-bearing liabilities |       |                        | 70,575 |        |   |         | 5.30 |          |       |        | 59,864 |         |   |          | 2,939 |         |   |      | 4.91 |       |       |        | 46,872 |       |   |         | 2,368 |        |   |      | 5.05 | 
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|                                                                 | Non-interest-bearing liabilities |                            |                                    | 629   |                        |        |        |   |         |      |          | 390   |        |        |         |   |          |       |         |   |      |      |       | 378   |        |        |       |   |         |       |        |   |     
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|                                                                 |                                  |                            | Total liabilities                  |       |                        | 71,204 |        |   |         |      |          |       |        | 60,254 |         |   |          |       |         |   |      |      |       |       |        | 47,250 |       |   |         |       |        |   |      |      | 
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Stockholders equity             |                            |                                    | 4,780 |                        |        |        |   |         |      |          | 5,758 |        |        |         |   |          |       |         |   |      |      |       | 7,027 |        |        |       |   |         |       |        |   |     
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|                                                                 |                                  |                            | Total liabilities and equity       |       | $                      | 75,984 |        |   |         |      |          |       | $      | 66,012 |         |   |          |       |         |   |      |      |       |       | $      | 54,277 |       |   |         |       |        |   |      |      | 
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|                                                                
|                                                                
|                                                                
|                                                                
|Net interest income/interest rate spread                         |                                  |                            |                                    |       |                        |        | 2.18   | % |         |      |          |       |        |        | 1,519   |   |          |       | 2.08    | % |      |      |       |       |        | $      | 1,501 |   |         |       | 2.26   | %
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|Net interest-earning assets                                      |                                  | $                          | 3,672                              |       |                        |        |        |   |         | $    | 3,954    |       |        |        |         |   |          |       |         |   |      | $    | 6,050 |       |        |        |       |   |         |       |        |  
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|Net interest margin                                              |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       | 2.38    | % |      |      |       |       |        |        |       |   |         |       | 2.84   | %
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  
|Ratio of interest-earning assets to
interest-bearing liabilities |                                  |                            |                                    |       |                        |        | 105.20 | % |         |      |          |       |        |        |         |   |          |       | 106.60  | % |      |      |       |       |        |        |       |   |         |       | 112.91 | %
|                                                                 |                                  |                            |                                    |       |                        |        |        |   |         |      |          |       |        |        |         |   |          |       |         |   |      |      |       |       |        |        |       |   |         |       |        |  

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                 |                                  |                            |                                    |       |                        |        |          |   |       |       |        |   |         |      | 
|---------------------------------------------------------------- | -------------------------------- | -------------------------- | ---------------------------------- | ----- | ---------------------- | ------ | -------- | - | ----- | ----- | ------ | - | ------- | ---- | 
|                                                                 |                                  |                            |                                    |       | 1997                  
|                                                                 |                                  |                            |                                    |       |                       
|                                                                 |                                  |                            |                                    |       |                        |        |          |   |       |       |        |   | Average
|                                                                 |                                  |                            |                                    |       | Average                |        |          |   |       |       | Yield/
|                                                                 |                                  |                            |                                    |       | Balance                |        | Interest |   | Cost 
|                                                                 |                                  |                            |                                    |       |                        |        |          |   |      
|                                                                 |                                  |                            |                                    |       | (Dollars in thousands)
|Assets:                                                         
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Interest-earning assets:        
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  | Interest-bearing deposits  |                                    | $     | 558                    |        |          | $ | 27    |       |        |   | 4.84    | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  | Investments                |                                    |       | 6,267                  |        |          |   | 451   |       |        |   | 7.20    |     
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  | Mortgage-backed securities |                                    |       | 1,221                  |        |          |   | 88    |       |        |   | 7.21    |     
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  | Loans receivable, net      |                                    |       | 38,943                 |        |          |   | 2,977 |       |        |   | 7.64    |     
|                                                                 |                                  |                            |                                    |       |                        |        |          |   |       |       |        |  
|                                                                 |                                  |                            | Total interest-earning assets      |       |                        | 46,989 |          |   |       | 3,543 |        |   |         | 7.54 | 
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Non-interest-earning assets      |                            |                                    | 1,128 |                       
|                                                                 |                                  |                            |                                    |      
|                                                                 |                                  |                            | Total assets                       |       | $                      | 48,117 |         
|                                                                 |                                  |                            |                                    |      
|Liabilities and Equity:                                         
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Interest-bearing liabilities:   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  | Deposits                   |                                    | $     | 31,134                 |        |          | $ | 1,487 |       |        |   | 4.78    | %   
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 |                                  | FHLB advances              |                                    |       | 9,499                  |        |          |   | 541   |       |        |   | 5.70    |     
|                                                                 |                                  |                            |                                    |       |                        |        |          |   |       |       |        |  
|                                                                 |                                  |                            | Total interest-bearing liabilities |       |                        | 40,633 |          |   |       | 2,028 |        |   |         | 4.99 | 
|                                                                 |                                  |                            |                                    |       |                        |        |          |  
|                                                                 | Non-interest-bearing liabilities |                            |                                    | 287   |                       
|                                                                 |                                  |                            |                                    |      
|                                                                 |                                  |                            | Total liabilities                  |       |                        | 40,920 |         
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                 | Stockholders equity             |                            |                                    | 7,197 |                       
|                                                                 |                                  |                            |                                    |      
|                                                                 |                                  |                            | Total liabilities and equity       |       | $                      | 48,117 |         
|                                                                 |                                  |                            |                                    |      
|                                                                 |                                  | $                          | 48,117                             |      
|                                                                 |                                  |                            |                                    |      
|Net interest income/interest rate spread                         |                                  |                            |                                    |       |                        | $      | 1,515    |   |       |       | 2.55   | %
|                                                                 |                                  |                            |                                    |       |                        |        |          |   |       |       |        |  
|Net interest-earning assets                                      |                                  | $                          | 6,356                              |      
|                                                                 |                                  |                            |                                    |      
|Net interest margin                                              |                                  |                            |                                    |       |                        |        |          |   |       |       | 3.22   | %
|                                                                 |                                  |                            |                                    |       |                        |        |          |   |       |       |        |  
|Ratio of interest-earning assets to
interest-bearing liabilities |                                  |                            |                                    |       |                        |        |          |   |       |       | 115.64 | %
|                                                                 |                                  |                            |                                    |       |                        |        |          |   |       |       |        |  

- 6 -



---



Rate/Volume Analysis

The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Banks interest income and interest expense
during the period indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate
(changes in rate multiplied by prior volume), and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.

|                                  |                            |                        |     |                              |     |                              |      |      |      |        |    |      |     |     |     |      |     |   |    |     |    |   |     |      |     | 
|--------------------------------- | -------------------------- | ---------------------- | --- | ---------------------------- | --- | ---------------------------- | ---- | ---- | ---- | ------ | -- | ---- | --- | --- | --- | ---- | --- | - | -- | --- | -- | - | --- | ---- | --- | 
|                                  |                            |                        |     | Year Ended December 31, 1999 |     | Year Ended December 31, 1998
|                                  |                            |                        |     | Compared to                  |     | Compared to                 
|                                  |                            |                        |     | Year Ended December 31, 1998 |     | Year Ended December 31, 1997
|                                  |                            |                        |     |                              |     |                             
|                                  |                            |                        |     | Increase                     |     | Increase                    
|                                  |                            |                        |     | (Decrease)                   |     | (Decrease)                  
|                                  |                            |                        |     | Due to                       |     | Due to                      
|                                  |                            |                        |     |                              |     |                             
|                                  |                            |                        |     | Volume                       |     | Rate                         |      | Net  |      | Volume |    | Rate |     | Net
|                                  |                            |                        |     |                              |     |                              |      |      |      |        |    |      |     |    
|                                  |                            |                        |     | (In thousands)              
|Interest-earning assets:         
|                                 
|                                 
|                                 
|                                 
|                                  | Interest-earning deposits  |                        | $   | (99                          | )   |                              | $    | 19   |      |        | $  | (80  | )   |     | $   | 83   |     |   | $  | (7  | )  |   | $   | 76   |    
|                                 
|                                 
|                                 
|                                 
|                                  | Investments                |                        |     | 10                           |     |                              |      | (11  | )    |        |    | (1   | )   |     |     | (153 | )   |   |    | (30 | )  |   |     | (183 | )  
|                                 
|                                 
|                                 
|                                 
|                                  | Mortgage-backed securities |                        |     | (128                         | )   |                              |      | (46  | )    |        |    | (174 | )   |     |     | 461  |     |   |    | (12 | )  |   |     | 449  |    
|                                 
|                                 
|                                 
|                                 
|                                  | Loans receivable, net      |                        |     | 1,103                        |     |                              |      | (259 | )    |        |    | 844  |     |     |     | (90  | )   |   |    | 74  |    |   |     | (16  | )  
|                                  |                            |                        |     |                              |     |                              |      |      |      |        |    |      |     |     |     |      |     |   |    |     |    |   |     |     
|                                  |                            | Total interest income  |     |                              | 866 |                              |      |      | (297 | )      |    |      | 589 |     |     |      | 301 |   |    |     | 25 |   |     |      | 326 | 
|                                  |                            |                        |     |                              |     |                              |      |      |      |        |    |      |     |     |     |      |     |   |    |     |    |   |     |     
|Interest-bearing liabilities:    
|                                 
|                                 
|                                 
|                                 
|                                  | Deposits                   |                        |     | 242                          |     |                              |      | (67  | )    |        |    | 175  |     |     |     | 64   |     |   |    | 5   |    |   |     | 69   |    
|                                 
|                                 
|                                 
|                                 
|                                  | FHLB advances              |                        |     | 424                          |     |                              |      | (28  | )    |        |    | 396  |     |     |     | 276  |     |   |    | (5  | )  |   |     | 271  |    
|                                  |                            |                        |     |                              |     |                              |      |      |      |        |    |     
|                                  |                            | Total interest expense |     |                              | 666 |                              |      |      | (95  | )      |    |      | 571 |     |     |      | 340 |   |    |     |   |   |     |      | 340 | 
|                                  |                            |                        |     |                              |     |                              |      |      |      |        |    |      |     |     |     |      |     |   |    |     |    |   |     |     
|Net change in net interest income |                            | $                      | 220 |                              |     | $                            | (202 | )    |      | $      | 18 |      |     | $   | (39 | )    |     | $ | 25 |     |    | $ | (14 | )   
|                                  |                            |                        |     |                              |     |                              |      |      |      |        |    |      |     |     |     |      |     |   |    |     |    |   |     |     

- 7 -



---



Comparison of Financial Condition at December 31, 1999 and December 31, 1998.

The Companys total assets increased by $20.9 million, or 37.9%, to $76.0
million at December 31, 1999 from $55.1 million at December 31, 1998, due to a
$26.5 million, or 68.8%, increase in loans receivable from $38.5 million to
$65.0 million at December 31, 1999. The increase in loans was due to an
increase of $20.7 million in one-to-four family loans from $34.7 million to
$55.6 million, and an increase in multi-family loans from $1.6 million to $6.3
million, as multi-family loans enhance the net interest margin without a
significant increase in credit risk. Construction and consumer loans also
increased during the year ended December 31, 1999 compared to the prior year.
The Company, in January 2000, sold $5.4 million of adjustable-rate mortgage
loans recording a gain on the sale of approximately $35,000. The loans were
sold to strengthen the capital position of the Company and the proceeds were
used to repay FHLB advances. The increase in assets was offset by a $1.6
million decrease in cash and due from banks which was used to finance the loan
growth. The Company also experienced a decrease in investments and
mortgage-backed securities of $972,000, or 22.7%, from $4.2 million at December
31, 1998 to $3.3 million at December 31, 1999, due to repayments on
mortgage-backed securities and $700,000 in investment securities being called.
Collateralized Mortgage Obligations (CMOs) decreased $3.9 million, or 48.5%,
from $8.1 million at December 31, 1998 to $4.2 million at December 31, 1999 due
to the sale of $2.4 million of CMOs held as available for sale and principal
repayments on the CMOs. The cash available from the decrease in investments,
mortgage-backed securities and CMOs were used to fund the growth in loans
receivable. On July 1, 1999, the Company reclassified all CMOs as held to
maturity to available for sale classification to increase the Companys
liquidity position. FHLB stock increased by $761,000, or 95.6%, from $822,000
at December 31, 1998 to $1.6 million at December 31, 1999. The increase in
FHLB stock was necessary to allow for additional borrowing from the FHLB.

The Companys total liabilities increased $23.2 million, or 48.5%, to
$71.2 million at December 31, 1999 from $47.9 million at December 31, 1998, due
to an increase in FHLB borrowings and deposit growth. FHLB borrowings
increased $16.7 million, or 115.6%, from $14.4 million at December 31, 1998 to
$31.1 million at December 31, 1999. The borrowings from the FHLB were used to
fund the loan growth. The increase in liabilities was also due to an increase
in deposits of $6.4 million, or 19.3%, to $39.4 million from $33.1 million at
December 31, 1998. The increase in deposits was primarily in certificates of
deposits, which increased $6.1 million, or 26.4%, from $23.1 million at
December 31, 1998 to $29.3 million at December 31, 1999, due to aggressive
pricing designed to attract and retain CDs to fund the loan growth.

Stockholders equity decreased $2.4 million, or 33.1%, from $7.1 million
at December 31, 1998 to $4.8 million at December 31, 1999. The decrease in
stockholders equity was primarily due to the repurchase of 119,385 shares of
the Companys outstanding common stock, and to a lesser extent to, a decrease
in the market value on investments available for sale of $123,000, net of taxes
and the net loss of $53,000 for the fiscal year. The repurchase of the
Companys outstanding common stock was an important step in increasing the
return on equity.

Comparison of Operating Results for the Years Ended December 31, 1999 and December 31, 1998

General.The Company reported a net loss of $53,000 for the year ended
December 31, 1999 compared to net income of $214,000 for the year ended
December 31, 1998, a decrease of $267,000, due primarily to an increase of
$341,000, or 23.7%, in the Companys general and administrative expenses. The
increase in the general and administrative expenses was due primarily to the
one-time charge for acceleration of amortization of leasehold improvements
resulting from the termination of the lease agreement with Procter & Gamble and
to additional legal and professional expenses in connection with the Companys
annual meeting and implementation of its stock repurchase. This decrease was
offset by an increase in net interest income of $17,000 due to an increase in
the average interest earning assets to $63.8 million from $52.9 million and a
reduction in net interest margin from 2.84% for the year ended December 31,
1998 to 2.38% for the year ended December 31, 1999.

Interest Income.Interest and dividend income for the year ended December
31, 1999 increased $589,000, or 15.2%, to $4.5 million from $3.9 million for
the year ended December 31, 1998, due primarily to a $16.8 million increase in
average interest earning assets from $47.0 million for the year ended December
31, 1998 to $63.8 million for the year ended December 31, 1999. The increase
in average interest earning assets was almost exclusively due to loan growth.
The increase was offset by a decrease in the weighted average yield from 7.31%
for the year ended December 31, 1998 to 6.99% at December 31, 1999, due to loan
customers refinancing to lower rate adjustable-rate mortgage loans and the
amortization of premiums on the Companys CMO portfolio due to accelerated
prepayments during the year. Interest income on investments and interest
bearing deposits decreased $81,000 to $290,000 for the year ended December 31,
1999 from $371,000 for the year ended December 31, 1998 as the funds were
invested in loan growth.

- 8 -



---



Interest Expense.Interest expense increased $571,000, or 24.1%, to $2.9
million for the year ended December 31, 1999 from $2.4 million for the year
ended December 31, 1998 due to additional advances from the FHLB and deposit
growth. Interest expense on deposits increased due to an $5.2 million, or
16.1%, increase in the average deposits from $32.5 million for the year ended
December 31, 1998 to $37.7 million for the year ended December 31, 1999. The
increase was offset by a decrease in the weighted average rate on deposits from
4.79% for the year ended December 31, 1998 to 4.59% for the year ended December
31, 1999 as depositors elected shorter term CDs. Interest expense on FHLB
advances increased due to an increase in the average balance of advances from
the FHLB to $22.2 million for the year ended December 31, 1999 compared to $9.5
million for the year ended December 31, 1998, an increase of $12.7 million.
The yield on the advances for the FHLB decreased 19 basis points to 5.45% for
the year ended December 31, 1999 compared to 5.64% for the year ended December
31, 1998.

Provision for Loan Losses.The provision for loan losses increased
$22,500, or 128.6%, to $40,000 for the year ended December 31, 1999 compared to
$17,500 for the year ended December 31, 1998, due to the increase in the loan
portfolio and the increased risk associated with increased multi-family and
consumer lending. The Companys management closely monitors its mortgage and
consumer loan portfolio and maintains the allowance for loan losses at a level
which the Company believes to be adequate based on the evaluation of the
collectibility of the loans, prior loan losses and the general economic
conditions. While the Company utilizes the best information available to
establish the allowance for loan losses, future adjustments to allowance may be
necessary due to economic, operating, regulatory and other conditions that may
be beyond the Companys control.

Other Income.Other income decreased $56,000 to $236,000 for the year
ended December 31, 1999 from $292,000 for the year ended December 31, 1998, due
to the reduction in gain on sale of loans from $124,000 for the year ended
December 31, 1998 to $102,000 for the year ended December 31, 1999. The
decrease in gain on sale of loans was due to reduced fixed-rate loans sales as
the secondary market activity dropped with the increase in the interest rates
during the second half of 1999. Income on service fees and other income
decreased to $129,000 from $150,000 for the year ended December 31, 1998, as
customers have incurred less service and late charges in 1999 as compared to
1998.

General, Administrative and Other Expenses.General and administrative
expenses increased $341,000, or 23.7%, to $1.8 million for the year ended
December 31, 1999 compared to $1.4 million for the year ended December 31,
1998. The increase was primarily due to a $133,000, or 52.2%, increase in
occupancy and equipment expenses from $255,000 for the year ended December 31,
1998 to $389,000 for the year ended December 31, 1999, due to a one-time charge
of $138,000 for the amortization of the leasehold improvements in connection
with the expiration of the lease agreement on the Companys main banking office
in St. Bernard. In July 1999 Procter & Gamble informed the Company that it
would not renew the Companys lease for its main office when the lease expired
on December 31, 1999. The Company negotiated an extension of three months with
Procter & Gamble to March 31, 2000 as the construction of a new branch is to be
completed in late March. The Company purchased property in January 2000 for
$545,000, and the building will be renovated with an estimated cost of
$175,000. Legal and other professional fees and expenses increased $109,000,
or 71.7%, to $261,000 for the year ended December 31, 1999 compared to $152,000
for the year ended December 31, 1999 relating to issues in connection with the
annual meeting and the implementation of the stock repurchase. Compensation
and benefits increased $44,000, or 6.1%, to $757,000 for the year ended
December 31, 1999 as compared to $713,000 for the year ended December 31, 1998,
due to normal merit increases and the additional compensation relating to the
new mortgage corporation subsidiary.

Income Taxes.The Company received an income tax credit for the year
ended December 31, 1999 of $14,000 compared to an income tax expense of
$120,000 for the year ended December 31, 1998. Taxes are calculated on net
income less the ESOP expense as required by SOP 93-6. The effective tax rates
for the years ended December 31, 1999 and 1998 were 21.5% and 35.9%
respectively.

- 9 -



---



Comparison of Operating Results for the Years Ended December 31, 1998 and December 31, 1997

General.The Banks net income for the year ended December 31, 1998,
increased by $19,000, or 9.7%, to $214,000 as compared to $195,000 for the year
ended December 31, 1997, primarily due to an increase in other income of
$161,000 to $292,000 for fiscal year 1998 from $131,000 for fiscal year 1997,
offset by an increase in general, administrative and other expense of $120,000
to $1.4 million for fiscal year 1998 from $1.3 million for fiscal 1997, and a
reduction in net interest income after provision for loan loss of $20,000 to
$1.48 million for fiscal year 1998 from $1.50 million for fiscal year 1997.

Interest Income.Interest income for the year ended December 31, 1998 was
$3.9 million compared to $3.5 million for the year ended December 31, 1997, an
increase of $326,000 or 9.2%. The increase in interest income was primarily
due to a $6.0 million increase in the average interest-earning assets from
$47.0 million for the year ended December 31, 1997 to $52.9 million for the
year ended December 31, 1998, offset by a 23 basis point decrease in the
average yield on those assets from 7.54% for the year ended December 31, 1997
to 7.31% for the year ended December 31, 1998. The increase in average
interest-earning assets was primarily in CMOs, with an average balance of $7.6
million for fiscal year 1998, compared to $397,000 for fiscal year 1997. Such
an increase resulted in $475,000 in income for the year ended December 31,
1998, compared to a $10,000 in income for the year ended December 31, 1997, for
a increase of $465,000. The average outstanding balance of mortgage-backed
securities decreased to $935,000 for the year ended December 31, 1998 from $1.1
million for the year ended December 31, 1997, decreasing the interest earned on
mortgage-backed securities to $62,000 for the year ended December 31, 1998 from
$78,000 for the year ended December 31, 1997, a decrease of $16,000, or 20.3%.
The average balance of interest-bearing deposits increased from $558,000 for
the year ended December 31, 1997 to $2.7 million for the year ended December
31, 1998. The increases were offset by decreases in investments of $2.3
million to $4.0 million for the year ended December 31, 1998, compared with
$6.3 million for the year ended December 31, 1997. Loans receivable also
decreased by $1.2 million to $37.8 million for the year ended December 31, 1998
from $38.9 million for the year ended December 31, 1997. The reduction in
average loans receivable was due to managements decision to sell low yielding
fixed rate loans to protect the Bank when interest rates begin to rise.

Interest Expense.Interest expense increased by $339,000, or 16.7%, to
$2.4 million for the year ended December 31, 1998 from $2.0 million for the
year ended December 31, 1997. The increase was due to an increase in interest
expense on advances from the FHLB of $271,000, or 50.0%, to $812,000 for the
year ended December 31, 1998 from $541,000 for the year ended December 31,
1997, primarily due to an increase in the average balance of borrowings from
the FHLB increased $4.9 million from $9.5 million for the year ended December
31, 1997, to $14.4 million for the year ended December 31, 1998. Such cost
increased was offset by a decrease in the interest rate on average borrowings
from the FHLB from 5.70% for the year ended 1997 to 5.64% for the year ended
December 31, 1998. Interest expense on deposits also increased $69,000 from
$1.5 million for the year ended December 31, 1997 to $1.6 million for the year
ended December 31, 1998. This was due to an increase in the average
interest-bearing deposits of $1.3 million from $31.1 million for the year ended
December 31, 1997 to $32.5 million for the year ended December 31, 1998, and an
increase in the average interest rate paid on such deposits to 4.79% for the
year ended December 31, 1998 compared to 4.78% for the year ended December 31,
1997.

Provision for Loan Losses.The Banks provision for loan losses increased
$7,000 to $18,000 for the year ended December 31, 1998, compared to $11,000 for
the year ended December 31, 1997. The increase resulted from the Bank
replenishing the reserves for the amount that charge offs exceeded recoveries,
or $17,000 for the year ended December 31, 1998 compared to $3,000 for the year
ended December 31, 1997. The Bank has seen an improvement in non-performing
loans as of December 31, 1998 to $54,000 at December 31, 1998, from $174,000 at
December 31, 1997.

Other Income.Other income increased $161,000, or 122.5%, from $131,000
for the year ended December 31, 1997 to $292,000 for the year ended December
31, 1998. The increase was primarily due to the gain on sale of loans of
$124,000 for the year ended December 31, 1998, compared to no such sales for
the year ended December 31, 1997. In February 1998, the Bank received approval
to sell loans to Freddie Mac. During 1998, the Bank sold $8.2 million in
loans. The Bank also had gains on sale of investments of $12,000 and gains on
sale of real estate owned of $6,000 for the year ended December 31, 1998,
compared to no sales for the year ended December 31, 1997. Service fee income
also increased in 1998 by $19,000, or 14.2%, for the year ended December 31,
1998 from $131,000 for the year ended December 31, 1997, to $150,000 for the
year ended December 31, 1998, primarily due to the Bank changing its fee
structure.

- 10 -



---



General, Administrative and Other Expenses.General, administrative and
other expenses increased $120,000, or 9.1%, to $1.4 million for the year ended
December 31, 1998 from $1.3 million for the year ended December 31, 1997. The
increase was primarily due to an increase in the compensation and employee
benefits of $104,000, or 18.9%, from $551,000 for the year ended December 31,
1997 to $655,000 for the year ended December 31, 1998. The increase in
compensation and employee benefits is primarily due to an increase in salary
expense due to a full year of staffing the new branch and normal salary
adjustments, as well as the maintenance of stock-based benefit plans. The
occupancy and equipment increased $27,000 or 14.4%, from $185,000 for the year
ended December 31, 1997 to $212,000 for the year ended December 31, 1998,
primarily due to the new branch.

Income Tax Expense.The tax expense increased by $1,000 or 1.0% from
$119,000 for the year ended December 31, 1997 to $120,000 for the year ended
December 31, 1998. The increase in income taxes was due to the increase in the
net income before taxes from $314,000 for the year ended December 31, 1997 to
$334,000 the year ended December 31, 1998. The effective tax rate for the year
ended December 31, 1998 and 1997 was 35.9% and 37.9%, respectively.

Liquidity and Capital Resources

The Companys primary sources of funds are deposits, principal and
interest payments on loans, and FHLB advances. While maturities and scheduled
amortization of loans are predictable source of funds, deposits flows and
mortgage prepayments are greatly influenced by general interest rates,
economics conditions and competition. The FDIC requires savings banks to
maintain a level of investments in specified types of liquid assets sufficient
to protect and ensure the safety and soundness of the savings bank. The Bank
maintains a minimum level of liquidity, as defined by the FDIC, such that the
total of cash and marketable investment securities divided by total deposits
and short term liabilities will exceed 15%. The Banks liquidity ratios were
17%, 24% and 17% at December 31, 1999, 1998 and 1997, respectively.

The primary investment activity of the Company is the origination of one-
to four-family mortgage loans, multi-family mortgage loans and consumer loans,
and the purchase of investments, including CMOs. During the years ended
December 31, 1999, 1998, and 1997, the Bank originated mortgage loans in the
amounts of $37.7 million, $20.7 million and $6.6 million, respectively, and
consumer loans in the amount of $1.2 million, $1.7 million and $2.4 million,
respectively. In 1999, the Company decreased its investments in CMOs from $8.1
million for the year ended 1998 to $4.2 million for the year ended 1999.

The FDIC has adopted risk-based capital ratio guidelines to which the Bank
is subject. The guidelines establish a systematic analytical framework that
makes regulatory capital requirements more sensitive to differences in risk
profiles among banking organizations. Risk-based capital ratios are determined
by allocating assets and specified off-balance sheet commitments to four risk
weighted categories, with higher levels of capital being required for the
categories perceived as representing greater risk.

These guidelines divide a banks capital into two tiers. The first tier
(Tier 1) includes common equity, certain non-cumulative perpetual preferred
stock (excluding auction rate issues), retained earnings and minority interests
in equity accounts of consolidated subsidiaries, less goodwill and certain
other intangible assets (except mortgage servicing rights and purchased credit
card relationships, subject to certain limitations). Supplementary (Tier II)
capital includes, among other items, cumulative perpetual and long-term
limited-life preferred stock, mandatory convertible securities, certain hybrid
capital instruments, term subordinated debts and allowance for loan and lease
losses, subject to certain limitations, less required deductions. Banks are
required to maintain a total risk-based capital ratio of 8%, of which 4% must
be Tier I capital. The FDIC may, however, set higher capital requirements when
a banks particular circumstances warrant. Banks experiencing or anticipating
significant growth are expected to maintain a Tier I leverage ratio, including
tangible capital positions, well above the minimum levels.

In addition, the FDIC established guidelines prescribing a minimum Tier I
leverage ratio (Tier I capital to adjusted total assets as specified in the
guidelines). These guidelines provide for a minimum Tier I leverage ratio of
3% for banks that meet certain specified criteria, provided that they have the
highest regulatory rating and are not experiencing or anticipating significant
growth. All other banks are required to maintain a Tier I leverage ratio of
4%. At December 31, 1999, the Bank maintained a leverage ratio of 6.4% and
total capital to risk weighted assets ratio of 12.0%. See Note 9 to the
Financial Statements appearing elsewhere in this Annual Report.

- 11 -



---



The Banks most liquid assets are cash and short-term investments. The
levels of these assets are dependent on the Banks operating, financing,
lending and investing activities during any given period. At December 31,
1999, cash and short term investments totaled $931,000.

At December 31, 1999, the Bank had outstanding loan commitments (including
undisbursed loan proceeds and unused line of credits) of $3.1 million. The
Bank anticipates that it will have sufficient funds available to meet its
current loan origination commitments. Certificates of deposits which are
scheduled to mature in one year or less from December 31, 1999, totaled $15.9
million.

Impact of Inflation and Changing Prices

The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of
the Companys operation. Unlike industrial companies, nearly all of the assets
and liabilities of the Company are monetary in nature. As a result, interest
rates have a greater impact on the Companys performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the price of goods and services.

- 12 -



---



Independent Auditors Report

The Board of Directors
Lenox Bancorp Inc.:

We have audited the accompanying consolidated balance sheets of Lenox Bancorp
Inc. as of December 31, 1999 and 1998, and the related consolidated statements
of operations, comprehensive income (loss), changes in stockholders equity, and
cash flows for each of the three years in the period ended December 31, 1999.
These financial statements are the responsibility of the Bancorps management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lenox Bancorp Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.

/s/ Clark, Schaefer, Hackett & Co.

Cincinnati, Ohio
February 24, 2000





---



LENOX BANCORP INC.

Consolidated Balance Sheets

December 31, 1999 and 1998

|                                                                                                                                                    |                                                                                                                                         |                                                                              |                                      |            |              |   |            |           |        |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------------ | ---------- | ------------ | - | ---------- | --------- | ------ |  | 
|                                                                                                                                                    |                                                                                                                                         |                                                                              |                                      |            | December 31,
|                                                                                                                                                    |                                                                                                                                         |                                                                              |                                      |            |             
|                                                                                                                                                    |                                                                                                                                         |                                                                              |                                      |            | 1999         |   | 1998      
|                                                                                                                                                    |                                                                                                                                         |                                                                              |                                      |            |              |   |           
|                                                                                                                                                    |                                                                                                                                         |                                                                              | Assets                              
|Cash and due from banks (including interest
bearing deposits of $132,139 and $1,759,439
at December 31, 1999 and 1998)                              |                                                                                                                                         | $                                                                            | 738,040                              |            |              |   | 2,350,276  |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Certificates of deposit                                                                                                                             |                                                                                                                                         |                                                                              | 193,281                              |            |              |   | 183,091    |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Investment securities  available for
sale, at fair value (amortized cost of
$2,701,820 and $3,303,267 at
December 31, 1999 and 1998)               |                                                                                                                                         |                                                                              | 2,534,550                            |            |              |   | 3,300,922  |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Mortgage-backed securities  available for
for sale, at fair value (amortized cost
of $602,109 and $798,607 at
December 31, 1999 and 1998)          |                                                                                                                                         |                                                                              | 588,405                              |            |              |   | 805,018    |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Collateralized mortgage obligations  held to
maturity (fair value of $5,992,275 at
December 31, 1998)                                              |                                                                                                                                         |                                                                              |                                     |            |              |   | 5,925,580  |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Collateralized mortgage obligations  available
for sale, at fair value (amortized cost
of $4,158,756 and $2,166,515 at
December 31, 1999 and 1998) |                                                                                                                                         |                                                                              | 4,170,701                            |            |              |   | 2,179,132  |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Loans receivable, net                                                                                                                               |                                                                                                                                         |                                                                              | 59,434,058                           |            |              |   | 38,308,042 |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Loans held for sale  at lower of cost or market                                                                                                    |                                                                                                                                         |                                                                              | 5,611,009                            |            |              |   | 220,020    |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Accrued interest receivable:                                                                                                                       
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Loans                                                                                                                                   |                                                                              |                                      | 360,530    |              |   |            | 161,133   |       
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Mortgage-backed securities                                                                                                              |                                                                              |                                      | 4,427      |              |   |            | 5,009     |       
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Collateralized mortgage obligations                                                                                                     |                                                                              |                                      | 22,669     |              |   |            | 39,666    |       
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Investments and certificates of deposit                                                                                                 |                                                                              |                                      | 50,181     |              |   |            | 63,221    |       
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Property and equipment, net                                                                                                                         |                                                                                                                                         |                                                                              | 399,375                              |            |              |   | 563,802    |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Federal Home Loan Bank stock  at cost                                                                                                              |                                                                                                                                         |                                                                              | 1,582,800                            |            |              |   | 822,200    |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Prepaid expenses and other assets                                                                                                                   |                                                                                                                                         |                                                                              | 217,113                              |            |              |   | 156,666    |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Prepaid federal income taxes                                                                                                                        |                                                                                                                                         |                                                                              | 77,109                               |            |              |   | 5,652      |          
|                                                                                                                                                    |                                                                                                                                         |                                                                              |                                      |            |              |   |            |          
|                                                                                                                                                    |                                                                                                                                         | $                                                                            | 75,984,248                           |            |              |   | 55,089,430 |          
|                                                                                                                                                    |                                                                                                                                         |                                                                              |                                      |            |              |   |            |          
|                                                                                                                                                    |                                                                                                                                         |                                                                              | Liabilities and Stockholders Equity
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Deposits                                                                                                                                            |                                                                                                                                         | $                                                                            | 39,435,782                           |            |              |   | 33,066,738 |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Advances from Federal Home Loan Bank                                                                                                                |                                                                                                                                         |                                                                              | 31,138,664                           |            |              |   | 14,440,006 |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Advance payments by borrowers for taxes
and insurance                                                                                               |                                                                                                                                         |                                                                              | 265,490                              |            |              |   | 162,405    |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Accrued expenses                                                                                                                                    |                                                                                                                                         |                                                                              | 309,296                              |            |              |   | 161,474    |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Deferred federal income taxes                                                                                                                       |                                                                                                                                         |                                                                              | 55,010                               |            |              |   | 112,172    |          
|                                                                                                                                                    |                                                                                                                                         |                                                                              |                                      |            |              |   |            |          
|                                                                                                                                                    |                                                                                                                                         |                                                                              | 71,204,242                           |            |              |   | 47,942,795 |          
|                                                                                                                                                    |                                                                                                                                         |                                                                              |                                      |            |              |   |            |          
|Commitments                                                                                                                                         |                                                                                                                                         |                                                                              |                                     |            |              |   |           |          
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Stockholders equity:                                                                                                                              
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Common stock-authorized 2,000,000 shares no par value, 425,677 issued and
285,028 and 404,413 outstanding at December 31, 1999
and 1998 |                                                                              |                                      |           |              |   |            |          |       
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Additional paid in capital                                                                                                              |                                                                              |                                      | 3,776,186  |              |   |            | 3,743,279 |       
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Retained earnings  substantially restricted                                                                                            |                                                                              |                                      | 4,108,000  |              |   |            | 4,216,005 |       
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Unearned ESOP shares                                                                                                                    |                                                                              |                                      | (208,470   | )            |   |            | (240,463  | )     
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Shares acquired for Stock Incentive Plan                                                                                                |                                                                              |                                      | (217,012   | )            |   |            | (235,469  | )     
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Less 140,649 and 21,264 shares held in treasury
at December 31, 1999 and 1998                                                           |                                                                              |                                      | (2,567,139 | )            |   |            | (347,728  | )     
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    | Accumulated other comprehensive income:                                                                                                
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                    |                                                                                                                                         | Unrealized gain (loss) on available for sale
securities, net of income taxes |                                      |            | (111,559     | ) |            |           | 11,011 | 
|                                                                                                                                                    |                                                                                                                                         |                                                                              |                                      |            |              |   |            |          
|                                                                                                                                                    |                                                                                                                                         |                                                                              | 4,780,006                            |            |              |   | 7,146,635  |          
|                                                                                                                                                    |                                                                                                                                         |                                                                              |                                      |            |              |   |            |          
|                                                                                                                                                    |                                                                                                                                         | $                                                                            | 75,984,248                           |            |              |   | 55,089,430 |          
|                                                                                                                                                    |                                                                                                                                         |                                                                              |                                      |            |              |   |            |          
|See accompanying notes to financial statements                                                                                                     

- 2 -



---



LENOX BANCORP INC.

Consolidated Statements of Operations

Three Years Ended December 31, 1999

|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |           |           | 
|------------------------------------------- | ----------------------------------------- | --------------------------------------------------------- | --------- | --------- | --------- | ---- | --------- | --------- | --------- |  | --------- | --------- | --------- | 
|                                            |                                           |                                                           |           | 1999      |           | 1998 |           | 1997     
|                                            |                                           |                                                           |           |           |           |      |           |          
|Interest and dividend income:              
|                                           
|                                           
|                                           
|                                           
|                                            | Loans                                     |                                                           | $         | 3,805,200 |           |      |           | 2,960,490 |           |  |           | 2,976,736 |          
|                                           
|                                           
|                                           
|                                           
|                                            | Mortgage-backed securities                |                                                           |           | 44,440    |           |      |           | 62,257    |           |  |           | 78,082    |          
|                                           
|                                           
|                                           
|                                           
|                                            | Collateralized mortgage obligations       |                                                           |           | 318,994   |           |      |           | 474,868   |           |  |           | 9,915     |          
|                                           
|                                           
|                                           
|                                           
|                                            | Investments and interest bearing deposits |                                                           |           | 209,759   |           |      |           | 315,449   |           |  |           | 441,694   |          
|                                           
|                                           
|                                           
|                                           
|                                            | Federal Home Loan Bank                    |                                                           |           | 79,781    |           |      |           | 55,664    |           |  |           | 36,354    |          
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|                                            |                                           |                                                           | 4,458,174 |           |           |      | 3,868,728 |           |           |  | 3,542,781 |          
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|Interest expense:                          
|                                           
|                                           
|                                           
|                                           
|                                            | Deposits                                  |                                                           |           | 1,731,320 |           |      |           | 1,555,783 |           |  |           | 1,487,274 |          
|                                           
|                                           
|                                           
|                                           
|                                            | Borrowed money and capitalized leases     |                                                           |           | 1,208,308 |           |      |           | 811,897   |           |  |           | 541,184   |          
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|                                            |                                           |                                                           | 2,939,628 |           |           |      | 2,367,680 |           |           |  | 2,028,458 |          
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|                                            |                                           | Net interest income before provision
for loan losses      |           |           | 1,518,546 |      |           |           | 1,501,048 |  |           |           | 1,514,323 | 
|                                           
|                                           
|                                           
|                                           
|Provision for loan losses                   |                                           |                                                           | 40,000    |           |           |      | 17,500    |           |           |  | 10,500    |          
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|                                            |                                           | Net interest income after provision
for loan losses       |           |           | 1,478,546 |      |           |           | 1,483,548 |  |           |           | 1,503,823 | 
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|Other income:                              
|                                           
|                                           
|                                           
|                                           
|                                            | Service fee and other income              |                                                           |           | 129,202   |           |      |           | 149,566   |           |  |           | 130,988   |          
|                                           
|                                           
|                                           
|                                           
|                                            | Gain on sale of real estate owned         |                                                           |           |          |           |      |           | 6,357     |           |  |           |          |          
|                                           
|                                           
|                                           
|                                           
|                                            | Gain on sale of investments               |                                                           |           | 4,842     |           |      |           | 11,648    |           |  |           |          |          
|                                           
|                                           
|                                           
|                                           
|                                            | Gain on sale of loans                     |                                                           |           | 101,675   |           |      |           | 123,942   |           |  |           |          |          
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|                                            |                                           |                                                           | 235,719   |           |           |      | 291,513   |           |           |  | 130,988   |          
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|General, administrative and other expenses:
|                                           
|                                           
|                                           
|                                           
|                                            | Compensation and employee benefits        |                                                           |           | 756,922   |           |      |           | 713,235   |           |  |           | 590,529   |          
|                                           
|                                           
|                                           
|                                           
|                                            | Occupancy and equipment                   |                                                           |           | 388,837   |           |      |           | 255,535   |           |  |           | 240,230   |          
|                                           
|                                           
|                                           
|                                           
|                                            | Federal deposit insurance premiums        |                                                           |           | 20,726    |           |      |           | 19,397    |           |  |           | 21,288    |          
|                                           
|                                           
|                                           
|                                           
|                                            | Franchise taxes                           |                                                           |           | 80,639    |           |      |           | 85,426    |           |  |           | 84,495    |          
|                                           
|                                           
|                                           
|                                           
|                                            | Legal and professional fees               |                                                           |           | 260,667   |           |      |           | 151,789   |           |  |           | 156,254   |          
|                                           
|                                           
|                                           
|                                           
|                                            | Advertising                               |                                                           |           | 38,275    |           |      |           | 43,119    |           |  |           | 45,573    |          
|                                           
|                                           
|                                           
|                                           
|                                            | Other operating expenses                  |                                                           |           | 235,467   |           |      |           | 172,111   |           |  |           | 182,134   |          
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|                                            |                                           |                                                           | 1,781,533 |           |           |      | 1,440,612 |           |           |  | 1,320,503 |          
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|                                            |                                           | Income (loss) before provision
(benefit) for income taxes |           |           | (67,268   | )    |           |           | 334,449   |  |           |           | 314,308   | 
|                                           
|                                           
|                                           
|                                           
|Provision (benefit) for income taxes        |                                           |                                                           | (14,477   | )         |           |      | 120,190   |           |           |  | 119,019   |          
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|                                            |                                           | Net income (loss)                                         |           | $         | (52,791   | )    |           |           | 214,259   |  |           |           | 195,289   | 
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|Basic earnings (loss) per share             |                                           | $                                                         | (0.18     | )         |           |      | 0.59      |           |           |  | 0.51      |          
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          
|Diluted earnings (loss) per share           |                                           | $                                                         | (0.17     | )         |           |      | 0.57      |           |           |  | 0.51      |          
|                                            |                                           |                                                           |           |           |           |      |           |           |           |  |           |          

See accompanying notes to financial statements.

- 3 -



---



LENOX BANCORP INC.

Consolidated Statements of Comprehensive Income (Loss)

Three Years Ended December 31, 1999

|                                              |                                                              |                                                                      |                                                          |   |          |          |         |  |        |       |         |  |        |        | 
|--------------------------------------------- | ------------------------------------------------------------ | -------------------------------------------------------------------- | -------------------------------------------------------- | - | -------- | -------- | ------- |  | ------ | ----- | ------- |  | ------ | ------ | 
|                                              |                                                              |                                                                      |                                                          |   | 1999     |          | 1998    |  | 1997  
|                                              |                                                              |                                                                      |                                                          |   |          |          |         |  |       
|Net income (loss)                             |                                                              | $                                                                    | (52,791                                                  | ) |          |          | 214,259 |  |        |       | 195,289 | 
|                                             
|                                             
|                                             
|                                             
|Other comprehensive income (loss), net of tax
|                                             
|                                             
|                                             
|                                             
|                                              | Unrealized gains (losses) on available for
sale sercurities:
|                                             
|                                             
|                                             
|                                             
|                                              |                                                              | Unrealized holding gains (losses)
during the year                    |                                                          |   | (119,374 | )        |         |  | 17,566 |       |         |  | 69,744 |       
|                                             
|                                             
|                                             
|                                             
|                                              |                                                              | Reclassification adjustments for gains
included in net income (loss) |                                                          |   | (3,196   | )        |         |  | (7,687 | )     |         |  |       |       
|                                              |                                                              |                                                                      |                                                          |   |          |          |         |  |        |       |         | 
|                                              |                                                              |                                                                      | Net gain (loss) recognized in other
comprehensive income |   |          | (122,570 | )       |  |        | 9,879 |         |  |        | 69,744 | 
|                                              |                                                              |                                                                      |                                                          |   |          |          |         |  |        |       |         | 
|Comprehensive income (loss)                   |                                                              | $                                                                    | (175,361                                                 | ) |          |          | 224,138 |  |        |       | 265,033 | 
|                                              |                                                              |                                                                      |                                                          |   |          |          |         |  |        |       |         | 

See accompanying notes to financial statements.

- 4 -



---



LENOX BANCORP INC.

Consolidated Statement of Changes in Stockholders Equity

Three Years Ended December 31, 1999

|                                                                                              |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |          |   |  |             |         |   |  |  |           |  
|--------------------------------------------------------------------------------------------- |  | ------ | - | ------- |  | ---------- | --------- | ------ |  | --------- | --------- | -------- |  | ---------- | -------- | ----- |  |  | -------- | ------------ |  |  | -------- | - |  | ----------- | ------- | - |  |  | --------- | -
|                                                                                              |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |          |   |  | Unrealized 
|                                                                                              |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |          |   |  | Gain (Loss)
|                                                                                              |  |        |   |         |  | Additional |           |        |  |           |           | Unearned |  | Stock      |          |       |  |  |          | on Available
|                                                                                              |  | Common |   | Paid in |  | Retained   |           | ESOP   |  | Incentive |           | Treasury |  | for Sale  
|                                                                                              |  | Stock  |   | Capital |  | Earnings   |           | Shares |  | Plan      |           | Stock    |  | Securities |          | Total
|                                                                                              |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |      
|Balance at December 31, 1996                                                                  |  | $      |  |         |  |            | 3,710,763 |        |  |           | 3,953,726 |          |  |            | (326,080 | )     |  |  |         |              |  |  |         |   |  |             | (68,612 | ) |  |  | 7,269,797 |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Net income for the year ended
December 31, 1997                                               |  |        |  |         |  |            |          |        |  |           | 195,289   |          |  |            |         |       |  |  |         |              |  |  |         |   |  |             |        |   |  |  | 195,289   |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|ESOP shares committed to be
allocated at average market price                                 |  |        |  |         |  |            | 11,610    |        |  |           |          |          |  |            | 44,357   |       |  |  |         |              |  |  |         |   |  |             |        |   |  |  | 55,967    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Shares acquired for future Stock
Incentive Plan awards                                        |  |        |  |         |  |            |          |        |  |           |          |          |  |            |         |       |  |  | (274,111 | )            |  |  |         |   |  |             |        |   |  |  | (274,111  | )
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Shares acquired to be held in treasury                                                        |  |        |  |         |  |            |          |        |  |           |          |          |  |            |         |       |  |  |         |              |  |  | (285,125 | ) |  |             |        |   |  |  | (285,125  | )
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Stock Incentive Plan awards                                                                   |  |        |  |         |  |            | (9,550    | )      |  |           |          |          |  |            |         |       |  |  | 9,550    |              |  |  |         |   |  |             |        |   |  |  |          |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Amortization of Stock Incentive Plan                                                          |  |        |  |         |  |            |          |        |  |           |          |          |  |            |         |       |  |  | 9,268    |              |  |  |         |   |  |             |        |   |  |  | 9,268     |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Change in net unrealized gain on
available-for-sale securities net of
deferred tax of $35,933 |  |        |  |         |  |            |          |        |  |           |          |          |  |            |         |       |  |  |         |              |  |  |         |   |  |             | 69,744  |   |  |  | 69,744    |  
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Cash dividends of $.20 per share                                                              |  |        |  |         |  |            |          |        |  |           | (76,204   | )        |  |            |         |       |  |  |         |              |  |  |         |   |  |             |        |   |  |  | (76,204   | )
|                                                                                              |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |          |   |  |             |         |   |  |  |           |  
|Balance at December 31, 1997                                                                  |  | $      |  |         |  |            | 3,712,823 |        |  |           | 4,072,811 |          |  |            | (281,723 | )     |  |  | (255,293 | )            |  |  | (285,125 | ) |  |             | 1,132   |   |  |  | 6,964,625 |  
|                                                                                              |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |          |   |  |             |         |   |  |  |           |  

See accompanying notes to financial statements.

- 5 -



---



LENOX BANCORP INC.
Consolidated Statement of Changes in Stockholders Equity

Three Years Ended December 31, 1999

|                                                                                             |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |          |   |  |             |        |  |  |  |           |  
|-------------------------------------------------------------------------------------------- |  | ------ | - | ------- |  | ---------- | --------- | ------ |  | --------- | --------- | -------- |  | ---------- | -------- | ----- |  |  | -------- | ------------ |  |  | -------- | - |  | ----------- | ------ |  |  |  | --------- | -
|                                                                                             |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |          |   |  | Unrealized 
|                                                                                             |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |          |   |  | Gain (Loss)
|                                                                                             |  |        |   |         |  | Additional |           |        |  |           |           | Unearned |  | Stock      |          |       |  |  |          | on Available
|                                                                                             |  | Common |   | Paid in |  | Retained   |           | ESOP   |  | Incentive |           | Treasury |  | for Sale  
|                                                                                             |  | Stock  |   | Capital |  | Earnings   |           | Shares |  | Plan      |           | Stock    |  | Securities |          | Total
|                                                                                             |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |      
|Balance at December 31, 1997                                                                 |  | $      |  |         |  |            | 3,712,823 |        |  |           | 4,072,811 |          |  |            | (281,723 | )     |  |  | (255,293 | )            |  |  | (285,125 | ) |  |             | 1,132  |  |  |  | 6,964,625 |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Net income for the year ended
December 31, 1998                                              |  |        |  |         |  |            |          |        |  |           | 214,259   |          |  |            |         |       |  |  |         |              |  |  |         |   |  |             |       |  |  |  | 214,259   |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|ESOP shares committed to be
allocated at average market price                                |  |        |  |         |  |            | 28,197    |        |  |           |          |          |  |            | 41,260   |       |  |  |         |              |  |  |         |   |  |             |       |  |  |  | 69,457    |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Shares acquired to be held in treasury                                                       |  |        |  |         |  |            |          |        |  |           |          |          |  |            |         |       |  |  |         |              |  |  | (62,603  | ) |  |             |       |  |  |  | (62,603   | )
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Stock Incentive Plan awards                                                                  |  |        |  |         |  |            | 2,259     |        |  |           |          |          |  |            |         |       |  |  | (2,259   | )            |  |  |         |   |  |             |       |  |  |  |          |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Amortization of Stock Incentive Plan                                                         |  |        |  |         |  |            |          |        |  |           |          |          |  |            |         |       |  |  | 22,083   |              |  |  |         |   |  |             |       |  |  |  | 22,083    |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Change in net unrealized gain on
available-for-sale securities net of
deferred tax of $5,089 |  |        |  |         |  |            |          |        |  |           |          |          |  |            |         |       |  |  |         |              |  |  |         |   |  |             | 9,879  |  |  |  | 9,879     |  
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|Cash dividends of $.20 per share                                                             |  |        |  |         |  |            |          |        |  |           | (71,065   | )        |  |            |         |       |  |  |         |              |  |  |         |   |  |             |       |  |  |  | (71,065   | )
|                                                                                             |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |          |   |  |             |        |  |  |  |           |  
|Balance at December 31, 1998                                                                 |  | $      |  |         |  |            | 3,743,279 |        |  |           | 4,216,005 |          |  |            | (240,463 | )     |  |  | (235,469 | )            |  |  | (347,728 | ) |  |             | 11,011 |  |  |  | 7,146,635 |  
|                                                                                             |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |          |   |  |             |        |  |  |  |           |  

See accompanying notes to financial statements.

- 6 -



---



LENOX BANCORP INC.
Consolidated Statement of Changes in Stockholders Equity

Three Years Ended December 31, 1999

|                                                                                                      |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |            |   |  |             |          |   |  |  |            |  
|----------------------------------------------------------------------------------------------------- |  | ------ | - | ------- |  | ---------- | --------- | ------ |  | --------- | --------- | -------- |  | ---------- | -------- | ----- |  |  | -------- | ------------ |  |  | ---------- | - |  | ----------- | -------- | - |  |  | ---------- | -
|                                                                                                      |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |            |   |  | Unrealized 
|                                                                                                      |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |            |   |  | Gain (Loss)
|                                                                                                      |  |        |   |         |  | Additional |           |        |  |           |           | Unearned |  | Stock      |          |       |  |  |          | on Available
|                                                                                                      |  | Common |   | Paid in |  | Retained   |           | ESOP   |  | Incentive |           | Treasury |  | for Sale  
|                                                                                                      |  | Stock  |   | Capital |  | Earnings   |           | Shares |  | Plan      |           | Stock    |  | Securities |          | Total
|                                                                                                      |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |      
|Balance at December 31, 1998                                                                          |  | $      |  |         |  |            | 3,743,279 |        |  |           | 4,216,005 |          |  |            | (240,463 | )     |  |  | (235,469 | )            |  |  | (347,728   | ) |  |             | 11,011   |   |  |  | 7,146,635  |  
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Net loss for the year ended
December 31, 1999                                                         |  |        |  |         |  |            |          |        |  |           | (52,791   | )        |  |            |         |       |  |  |         |              |  |  |           |   |  |             |         |   |  |  | (52,791    | )
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|ESOP shares committed to be
allocated at average market price                                         |  |        |  |         |  |            | 30,277    |        |  |           |          |          |  |            | 31,993   |       |  |  |         |              |  |  |           |   |  |             |         |   |  |  | 62,270     |  
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Shares acquired to be held in treasury                                                                |  |        |  |         |  |            |          |        |  |           |          |          |  |            |         |       |  |  |         |              |  |  | (2,223,172 | ) |  |             |         |   |  |  | (2,223,172 | )
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Shares reissued for excercised stock
options                                                          |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  | 3,761      |   |  |             |          |   |  |  | 3,761      |  
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Stock Incentive Plan awards                                                                           |  |        |  |         |  |            | (128      | )      |  |           |          |          |  |            |         |       |  |  | 128      |              |  |  |           |   |  |             |         |   |  |  |           |  
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Unvested stock awards returned to
Plan                                                                |  |        |   |         |  |            | 2,758     |        |  |           |           |          |  |            |          |       |  |  | (2,758   | )            |  |  |            |   |  |             |          |   |  |  |           |  
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Amortization of Stock Incentive Plan                                                                  |  |        |  |         |  |            |          |        |  |           |          |          |  |            |         |       |  |  | 21,087   |              |  |  |           |   |  |             |         |   |  |  | 21,087     |  
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Change in net unrealized gain on
available-for-sale securities net of
deferred tax benefit of $63,142 |  |        |  |         |  |            |          |        |  |           |          |          |  |            |         |       |  |  |         |              |  |  |           |   |  |             | (122,570 | ) |  |  | (122,570   | )
|                                                                                                     
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Cash dividends of $.20 per share                                                                      |  |        |  |         |  |            |          |        |  |           | (55,214   | )        |  |            |         |       |  |  |         |              |  |  |           |   |  |             |         |   |  |  | (55,214    | )
|                                                                                                      |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |            |   |  |             |          |   |  |  |            |  
|Balance at December 31, 1999                                                                          |  | $      |  |         |  |            | 3,776,186 |        |  |           | 4,108,000 |          |  |            | (208,470 | )     |  |  | (217,012 | )            |  |  | (2,567,139 | ) |  |             | (111,559 | ) |  |  | 4,780,006  |  
|                                                                                                      |  |        |   |         |  |            |           |        |  |           |           |          |  |            |          |       |  |  |          |              |  |  |            |   |  |             |          |   |  |  |            |  

See accompanying notes to financial statements.

- 7 -



---



LENOX BANCORP INC.

Consolidated Statements of Cash Flows

Three Years Ended December 31, 1999

|                                      |                                                                                |                                                                                      |   |             |             |      |  |             |            |   |  |            |            |  
|------------------------------------- | ------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------ | - | ----------- | ----------- | ---- |  | ----------- | ---------- | - |  | ---------- | ---------- | -
|                                      |                                                                                |                                                                                      |   | 1999        |             | 1998 |  | 1997       
|                                      |                                                                                |                                                                                      |   |             |             |      |  |            
|Cash flows from operating activities:
|                                     
|                                     
|                                     
|                                     
|                                      | Interest and dividends received                                                |                                                                                      | $ | 4,314,562   |             |      |  | 3,797,577   |            |   |  | 3,517,133  |           
|                                     
|                                     
|                                     
|                                     
|                                      | Interest paid                                                                  |                                                                                      |   | (2,867,583  | )           |      |  | (2,341,148  | )          |   |  | (1,975,424 | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Loans disbursed for sale in the secondary market                               |                                                                                      |   | (4,749,444  | )           |      |  | (8,398,600  | )          |   |  |           |           
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sale of loans in the secondary market                            |                                                                                      |   | 4,846,531   |             |      |  | 8,214,110   |            |   |  |           |           
|                                     
|                                     
|                                     
|                                     
|                                      | Loan origination fees received (paid)                                          |                                                                                      |   | (146,057    | )           |      |  | 16,563      |            |   |  | 27,322     |           
|                                     
|                                     
|                                     
|                                     
|                                      | Other fees received                                                            |                                                                                      |   | 129,202     |             |      |  | 148,214     |            |   |  | 130,647    |           
|                                     
|                                     
|                                     
|                                     
|                                      | Cash paid to suppliers and employees                                           |                                                                                      |   | (1,379,832  | )           |      |  | (1,242,194  | )          |   |  | (1,155,544 | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Income taxes paid                                                              |                                                                                      |   | (51,000     | )           |      |  | (157,342    | )          |   |  | (119,322   | )         
|                                      |                                                                                |                                                                                      |   |             |             |      |  |             |            |   |  |           
|                                      |                                                                                | Net cash provided by operating activities                                            |   |             | 96,379      |      |  |             | 37,180     |   |  |            | 424,812    |  
|                                      |                                                                                |                                                                                      |   |             |             |      |  |             |            |   |  |           
|Cash flows from investing activities:
|                                     
|                                     
|                                     
|                                     
|                                      | Property and equipment additions                                               |                                                                                      |   | (33,095     | )           |      |  | (36,551     | )          |   |  | (392,852   | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sale of equipment                                                |                                                                                      |   |            |             |      |  | 1,750       |            |   |  |           |           
|                                     
|                                     
|                                     
|                                     
|                                      | Repayments of mortgage-backed securities                                       |                                                                                      |   | 189,962     |             |      |  | 218,806     |            |   |  | 118,546    |           
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of collateralized mortgage obligations -
held to maturity             |                                                                                      |   |            |             |      |  | (1,857,798  | )          |   |  | (4,765,592 | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of collateralized mortgage obligations -
available for sale           |                                                                                      |   |            |             |      |  | (2,166,515  | )          |   |  |           |           
|                                     
|                                     
|                                     
|                                     
|                                      | Repayments of collateralized mortgage obligations                              |                                                                                      |   | 1,567,603   |             |      |  | 698,683     |            |   |  |           |           
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sale of collateralized mortgage
obligations  available for sale |                                                                                      |   | 2,344,782   |             |      |  |            |            |   |  |           |           
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of certificates of deposit                                            |                                                                                      |   | (10,190     | )           |      |  | (10,405     | )          |   |  | (10,406    | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of Federal Home Loan Bank stock                                       |                                                                                      |   | (681,100    | )           |      |  | (141,600    | )          |   |  | (152,900   | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Loan disbursements                                                             |                                                                                      |   | (34,141,937 | )           |      |  | (13,972,581 | )          |   |  | (8,884,327 | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Loans participations purchased                                                 |                                                                                      |   | (2,431,200  | )           |      |  | (2,468,313  | )          |   |  | (798,000   | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from loan participations sold                                         |                                                                                      |   | 300,000     |             |      |  |            |            |   |  |           |           
|                                     
|                                     
|                                     
|                                     
|                                      | Loan principal repayments                                                      |                                                                                      |   | 9,793,483   |             |      |  | 17,118,607  |            |   |  | 8,154,305  |           
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of investment securities  available for sale                         |                                                                                      |   |            |             |      |  | (2,703,500  | )          |   |  |           |           
|                                     
|                                     
|                                     
|                                     
|                                      | Maturity of investments  available for sale                                   |                                                                                      |   | 600,000     |             |      |  | 3,100,000   |            |   |  | 1,900,000  |           
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sale of investments  available for sale                         |                                                                                      |   |            |             |      |  | 608,813     |            |   |  |           |           
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from sale of real estate acquired through
foreclosure                 |                                                                                      |   |            |             |      |  | 40,424      |            |   |  |           |           
|                                      |                                                                                |                                                                                      |   |             |             |      |  |             |            |   |  |            |           
|                                      |                                                                                | Net cash used by investing activities                                                |   |             | (22,501,692 | )    |  |             | (1,570,180 | ) |  |            | (4,831,226 | )
|                                      |                                                                                |                                                                                      |   |             |             |      |  |             |            |   |  |           
|                                      |                                                                                | Net cash flows used by operating and investing
activities (subtotal carried forward) |   | $           | (22,405,313 | )    |  |             | (1,533,000 | ) |  |            | (4,406,414 | )
|                                      |                                                                                |                                                                                      |   |             |             |      |  |             |            |   |  |           
|                                      |                                                                                | Net cash flows used by operating and investing
activities (subtotal brought forward) |   | $           | (22,405,313 | )    |  |             | (1,533,000 | ) |  |            | (4,406,414 | )
|                                     
|                                     
|                                     
|                                     
|Cash flows from financing activities:
|                                     
|                                     
|                                     
|                                     
|                                      | Net increase (decrease) in deposits                                            |                                                                                      |   | 6,369,044   |             |      |  | 1,200,205   |            |   |  | (684,722   | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Net borrowings from Federal Home Loan Bank                                     |                                                                                      |   | 17,050,000  |             |      |  | 2,780,000   |            |   |  | 5,825,000  |           
|                                     
|                                     
|                                     
|                                     
|                                      | Repayment of Federal Home Loan Bank advances                                   |                                                                                      |   | (351,342    | )           |      |  | (627,117    | )          |   |  | (544,580   | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Payments on capitalized lease obligations                                      |                                                                                      |   |            |             |      |  |            |            |   |  | (4,867     | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of shares for future Stock Incentive Plan
awards                      |                                                                                      |   |            |             |      |  |            |            |   |  | (274,111   | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Purchase of shares to be held in treasury                                      |                                                                                      |   | (2,223,172  | )           |      |  | (62,603     | )          |   |  | (285,125   | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds from exercised stock options                                          |                                                                                      |   | 3,761       |             |      |  |            |            |   |  |           |           
|                                     
|                                     
|                                     
|                                     
|                                      | Dividends paid on common stock                                                 |                                                                                      |   | (55,214     | )           |      |  | (71,065     | )          |   |  | (76,204    | )         
|                                      |                                                                                |                                                                                      |   |             |             |      |  |             |            |   |  |           
|                                      |                                                                                | Net cash provided by financing activities                                            |   |             | 20,793,077  |      |  |             | 3,219,420  |   |  |            | 3,955,391  |  
|                                      |                                                                                |                                                                                      |   |             |             |      |  |             |            |   |  |           
|                                      | Increase (decrease) in cash and cash equivalents                               |                                                                                      |   | (1,612,236  | )           |      |  | 1,686,420   |            |   |  | (451,023   | )         
|                                     
|                                     
|                                     
|                                     
|                                      | Cash and due from banks at beginning of period                                 |                                                                                      |   | 2,350,276   |             |      |  | 663,856     |            |   |  | 1,114,879  |           
|                                      |                                                                                |                                                                                      |   |             |             |      |  |             |            |   |  |           
|                                      | Cash and due from banks at end of period                                       |                                                                                      | $ | 738,040     |             |      |  | 2,350,276   |            |   |  | 663,856    |           
|                                      |                                                                                |                                                                                      |   |             |             |      |  |             |            |   |  |           

See accompanying notes to financial statements.

- 8 -



---



LENOX BANCORP INC.

Consolidated Statements of Cash Flows

Three Years Ended December 31, 1999

Reconciliation of Net Income (Loss) to Net Cash
Provided by Operating Activities

|                                                                                         |                                                            |                                               |         |          |          |      |         |         |          |   |         |         |         |  
|---------------------------------------------------------------------------------------- | ---------------------------------------------------------- | --------------------------------------------- | ------- | -------- | -------- | ---- | ------- | ------- | -------- | - | ------- | ------- | ------- | -
|                                                                                         |                                                            |                                               |         | 1999     |          | 1998 |         | 1997   
|                                                                                         |                                                            |                                               |         |          |          |      |         |        
|Net income (loss)                                                                        |                                                            | $                                             | (52,791 | )        |          |      | 214,259 |         |          |   | 195,289 |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Depreciation and amortization                              |                                               |         | 231,301  |          |      |         | 75,036  |          |   |         | 61,164  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Provision for losses on loans                              |                                               |         | 40,000   |          |      |         | 17,500  |          |   |         | 10,500  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Amortization of deferred loan costs (fees)                 |                                               |         | 38,342   |          |      |         | (32,009 | )        |   |         | (7,292  | )      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Deferred loan origination fees (costs)                     |                                               |         | (171,263 | )        |      |         | (3,056  | )        |   |         | 17,934  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Federal Home Loan Bank stock dividends                     |                                               |         | (79,500  | )        |      |         | (55,500 | )        |   |         | (36,200 | )      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Gain on sale of investment and mortgage-
backed securities |                                               |         | (4,842   | )        |      |         | (11,648 | )        |   |         |        |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Gain on sale of equipment                                  |                                               |         |         |          |      |         | (1,352  | )        |   |         |        |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Gain on sale of real estate acquired
through foreclosure   |                                               |         |         |          |      |         | (6,357  | )        |   |         |        |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Amortization of stock incentive plan awards                |                                               |         | 21,087   |          |      |         | 22,083  |          |   |         | 9,268   |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | ESOP expense                                               |                                               |         | 62,270   |          |      |         | 69,457  |          |   |         | 55,967  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Effect of change in operating assets and
liabilities:     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                            | Loans held for sale                           |         |          | 55,570   |      |         |         | (220,020 | ) |         |         |        |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                            | Accrued interest receivable                   |         |          | (168,778 | )    |         |         | 1,789    |   |         |         | 14,752  |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                            | Excess servicing rights                       |         |          | (21,511  | )    |         |         | (82,035  | ) |         |         |        |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                            | Prepaid expenses and other assets             |         |          | (38,936  | )    |         |         | 14,050   |   |         |         | (9,231  | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                            | Prepaid income taxes                          |         |          | (48,157  | )    |         |         | (5,652   | ) |         |         |        |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                            | Advances by borrowers for taxes
and insurance |         |          | 103,085  |      |         |         | 28,330   |   |         |         | 40,432  |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                            | Accrued expenses                              |         |          | 147,822  |      |         |         | 43,805   |   |         |         | 65,229  |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                            | Accrued federal income tax                    |         |          |         |      |         |         | (40,000  | ) |         |         | (4,000  | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                            | Deferred federal income tax                   |         |          | (17,320  | )    |         |         | 8,500    |   |         |         | 11,000  |  
|                                                                                         |                                                            |                                               |         |          |          |      |         |         |          |   |         |        
|                                                                                         |                                                            | Net cash provided by operating
activities     |         |          | 96,379   |      |         |         | 37,180   |   |         |         | 424,812 |  
|                                                                                         |                                                            |                                               |         |          |          |      |         |         |          |   |         |        

Supplemental Disclosure of Non-Cash Investing and Financing Activities:

Loans with a carrying value of $34,067 were transferred to real estate acquired
through foreclosure during 1998.

See accompanying notes to financial statements.

- 9 -



---



LENOX BANCORP INC.




Notes to Financial Statements



|1. |  | Organization and Summary of Significant Accounting Policies:
|-- |  | ------------------------------------------------------------

The following describes the organization and the significant accounting
policies followed in the preparation of these financial statements.



| |  | Nature of operations and principles of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Lenox Bancorp Inc. (the Bancorp) is a holding company formed in 1995
in conjunction with the conversion of Lenox Savings Bank from a mutual
savings bank to a stock savings bank in July 1996. The conversion
culminated in the Corporations issuance of 425,677 shares. The
Bancorps financial statements include the accounts of its
wholly-owned subsidiary, Lenox Savings Bank and Lenox Savings Banks
wholly-owned subsidiary, Lenox Mortgage Corporation. All significant
intercompany transactions have been eliminated.                                                                                                                                                                                                                                                                                                                                           
|
| |  | Lenox Savings Bank is a state-chartered savings bank and a member of
the Federal Home Loan Bank system (FHLB) and subject to regulation by
the Federal Deposit Insurance Corporation (FDIC) and the State of
Ohio. As a member of the FHLB system, Lenox Savings Bank maintains a
required investment in capital stock of the Federal Home Loan Bank of
Cincinnati.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The Bancorps business consists of attracting deposits from the
general public and applying those funds in the origination of
residential and consumer loans. The Bancorps profitability is
significantly dependent on its net interest income, which is the
difference between interest income generated from interest-earning
assets (i.e. loans and investments) and the interest expense paid on
the interest-bearing liabilities (i.e. customer deposits and borrowed
funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and the
interest received or paid on these balances. The level of interest
rates paid or received by the Bancorp can be significantly influenced
by a number of environmental factors, such as governmental monetary
policy, that are outside of managements control.
|
| |  | Savings accounts are insured by the Savings Association Insurance Fund
(SAIF), a division of the FDIC, within certain limitations.
Semi-annual premiums are required by the SAIF for the insurance of
such savings accounts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

- 10 -



---





| |  | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and that affect the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Areas where managements estimates
and assumptions are more susceptible to change in the near term
include the allowance for loan losses and the fair value of certain
securities.                                                                                                                                                                                                                                                                            
|
| |  | Cash and due from banks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | For the purpose of presentation in the statements of cash flows, the
Bancorp considers all highly liquid debt instruments with original
maturity when purchased of three months or less to be cash
equivalents. Cash and cash equivalents are defined as those amounts
included in the balance sheets caption cash and due from banks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | The Bancorp maintains its cash deposit accounts at financial
institutions where the balance, at times, may exceed federally insured
limits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Investments in debt and equity securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Investments in debt and equity securities are classified upon
acquisition into one of three categories; held to maturity, trading,
and available for sale. Debt securities that the Bancorp has the
positive intent and ability to hold to maturity are classified as held
to maturity securities and reported at amortized cost. Debt and
equity securities that are bought and held principally for the purpose
of selling in the near-term are classified as trading securities and
reported at fair value, with unrealized gains and losses included in
earnings. The Bancorp has no trading securities. Debt and equity
securities not classified as either held to maturity securities or
trading securities are classified as available for sale securities and
reported at fair value, with unrealized gains or losses excluded from
earnings and reported as a separate component of equity, net of
deferred taxes.
|
| |  | Gains or losses on the sale of investment securities, mortgage-backed
securities and collateralized mortgage obligations available for sale
are determined on the specific identification method. Premiums and
discounts on investment securities, mortgage-backed securities and
collateralized mortgage obligations are amortized or accredited using
the interest method over the expected lives of the related securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

- 11 -



---





| |  | Loans receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Loans receivable that management has the intent and ability to hold
for the foreseeable future or until maturity or payoff are reported at
their outstanding unpaid principal balances reduced by any charge offs
or specific valuation accounts and net of any deferred fees or costs
on originated loans, or unamortized premiums or discounts on purchased
loans.                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the
related loan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | In 1998, the Bancorp began selling all eligible fixed rate and some
adjustable rate, single-family loans originated in the secondary
market. Loans held for sale are carried at the lower of cost or
market, determined in the aggregate. In computing cost, deferred loan
origination fees and costs are aggregated with the principal balances
of the related loans.                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | The Bancorp retains the servicing on some of the loans sold and agrees
to remit to the investor loan principal and interest at agreed-upon
rates. These rates can differ from the loans contractual interest
rate due to servicing fees retained.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | The allowance for loan and real estate losses is increased by charges
to income and decreased by charge offs (net of recoveries).
Managements periodic evaluation of the adequacy of the allowance is
based on the Bancorps past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the
borrowers ability to repay, the estimated value of any underlying
collateral, and current economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bancorps allowance for loan losses. Such
agencies may require the Bancorp to recognize additions to the
allowance based on judgments different from those of management.
|
| |  | Although management uses the best information available to make these
estimates, future adjustments to the allowances may be necessary in
the near term due to economic, operating, regulatory and other
conditions that may be beyond the Bancorps control. However, the
amount of the change that is reasonably possible cannot be estimated.                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Loans, including impaired loans, are generally classified as
non-accrual if they are past due as to maturity or payment of
principal or interest for a period of more than 90 days, unless such
loans are well-secured and in the process of collection. Loans that
are on a current payment status or past due less than 90 days may also
be classified as non-accrual if repayment in full of principal and/or
interest is in doubt.                                                                                                                                                                                                                                                                                                                  

- 12 -



---





| |  | Loans may be returned to accrual status when all principal and
interest amounts contractually due (including arrearages) are
reasonably assured of repayment within an acceptable period of time,
and there is a sustained period of repayment performance by the
borrower, in accordance with the contractual terms of interest and
principal. While a loan is classified as non-accrual, interest income
is generally recognized on a cash basis.                                                           
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Foreclosed real estate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Real estate properties acquired through, or in lieu of, loan
foreclosure are to be sold and are initially recorded at fair value at
the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and
the real estate is carried at the lower of carrying amount or fair
value less cost to sell. Revenue and expenses from operations and
changes in the valuation allowance are included in loss on foreclosed
real estate.                 
|
| |  | Property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Property and equipment are carried at cost, less accumulated
depreciation and amortization computed by straight-line and
accelerated methods over the estimated useful lives of the respective
assets.                                                                                                                                                                                                                                                                                                        
|
| |  | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Deferred tax assets and liabilities represent the tax effects of the
temporary differences in the basis of certain assets and liabilities
for tax and financial statement purposes, calculated at currently
effective tax rates of future deductible or taxable amounts
attributable to events that have been recognized on a cumulative basis
in the financial statements.                                                                                                                                   
|
| |  | The Bancorps principal temporary differences between pretax financial
income and taxable income result from different methods of accounting
for deferred loan origination fees and costs, Federal Home Loan Bank
stock dividends, the general loan loss allowance and the post-1987
percentage of earnings bad debt deduction. For certain assets
acquired after December 31, 1980, a temporary difference is also
recognized for depreciation utilizing accelerated methods for Federal
income tax purposes.
|
| |  | Concentration of customers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Bancorp accepts deposits from customers who are primarily
employees of The Procter & Gamble Company located in the Metropolitan
Cincinnati area. Subsequent to December 31, 1999, the Bancorp moved
its main office from a location adjacent to a Procter & Gamble
facility to a new location. The Bancorp grants the majority of its
real estate and consumer loans to customers in the Cincinnati area.                                                                                                 

- 13 -



---





| |  | Fair values of financial instruments                                                                                                  
| |  | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following methods and assumptions were used by the Bancorp in
estimating fair values of financial instruments as disclosed herein:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and short-term instruments. The carrying amounts
of cash and short-term instruments approximate their
fair value.                                                                                                                                                                                                                                                                                                                                                                       
|
| | Available-for-sale and held-to-maturity securities.
Fair values for securities excluding restricted equity
securities, are based on quoted market prices. The
carrying values of restricted equity securities
approximate fair values.                                                                                                                                                                                                                                                       
|
| | Loans receivable. For variable-rate loans that
reprice frequently and have no significant change in
credit risk, fair values are based on carrying values.
Fair values for certain mortgage loans (for example,
one-to-four family residential), credit-card loans,
and other consumer loans were estimated by discounting
the future cash flows using the current rates at which
similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
|
| | Deposit liabilities. The fair values disclosed for
demand deposits, NOW and money market accounts are, by
definition, equal to the amount payable on demand at
the reporting date (that is, their carrying amounts).
Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation
that applies interest rates currently being offered on
certificates to a schedule of aggregated expected
monthly maturities on time deposits.                 
|
| | FHLB advances. The fair values of FHLB advances are
estimated using discounted cash flow analyses based on
the Bancorps current incremental borrowing rates for
similar types of borrowing arrangements.                                                                                                                                                                                                                                                                                    
|
| | Accrued interest. The carrying amounts of accrued
interest approximate their fair values.                                                                                                                                                                                                                                                                                                                                                                                                    



| |  | Off balance sheet instruments                                                                                                                                                                                                                                                                                                     
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In the ordinary course of business, the Bancorp has entered into
off-balance sheet financial instruments consisting of commitments to
extend credit and commitments under line of credit loans. Such
financial instruments are recorded in the financial statements when
they are funded or related fees are incurred or received.

- 14 -



---





|   |  | Recent accounting pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities which established standards for
derivative instruments, including derivative instruments imbedded in
other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments at
fair value. This standard also allowed for a one-time
reclassification of investments securities from held to maturity to
available for sale. SFAS No. 133, as amended by SFAS No. 137, is
effective for all fiscal quarters beginning after June 15, 2000.
Management does not believe that the adoption of this standard will
impact the Bancorp because at the current time the Bancorp does not
hold any instruments covered by this standard.
|  
|   |  | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | Weighted average shares for December 31, 1997 have been restated for
the adoption of SFAS No. 128 Earnings Per Share. Earnings per
common share have been computed on the basis of the weighted average
number of common shares outstanding, and, when applicable, those stock
options that are dilutive.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|2. |  | Investments, Mortgage-Backed Securities and Collateralized Mortgage
Obligations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

The amortized cost and estimated fair values of investments and
mortgage-backed securities available for sale are as follows:

|                                        |  |                   |           |            |  |            |     |       |  |  |         |  |  |  |           | 
|--------------------------------------- |  | ----------------- | --------- | ---------- |  | ---------- | --- | ----- |  |  | ------- |  |  |  | --------- | 
|                                        |  | December 31, 1999
|                                        |  |                  
|                                        |  |                   |           |            |  | Gross      |     | Gross
|                                        |  | Amortized         |           | Unrealized |  | Unrealized |     | Fair 
|                                        |  | Cost              |           | Gains      |  | Losses     |     | Value
|                                        |  |                   |           |            |  |            |     |      
|U.S. Government and
agencies securities |  | $                 | 2,701,820 |            |  |            |    |       |  |  | 167,270 |  |  |  | 2,534,550 | 
|                                       
|                                       
|                                       
|                                       
|Mortgage-backed
securities              |  |                   | 602,109   |            |  |            | 289 |       |  |  | 13,993  |  |  |  | 588,405   | 
|                                        |  |                   |           |            |  |            |     |       |  |  |         |  |  |  |           | 
|                                        |  | $                 | 3,303,929 |            |  |            | 289 |       |  |  | 181,263 |  |  |  | 3,122,955 | 
|                                        |  |                   |           |            |  |            |     |       |  |  |         |  |  |  |           | 

- 15 -



---



|                                        |  |                   |           |            |  |            |        |       |  |  |       |  |  |  |           |  |  |  |  | 
|--------------------------------------- |  | ----------------- | --------- | ---------- |  | ---------- | ------ | ----- |  |  | ----- |  |  |  | --------- |  |  |  |  | 
|                                        |  | December 31, 1998
|                                        |  |                  
|                                        |  |                   |           |            |  | Gross      |        | Gross
|                                        |  | Amortized         |           | Unrealized |  | Unrealized |        | Fair 
|                                        |  | Cost              |           | Gains      |  | Losses     |        | Value
|                                        |  |                   |           |            |  |            |        |      
|U.S. Government and
agencies securities |  | $                 | 3,303,267 |            |  |            | 3,945  |       |  |  | 6,290 |  |  |  | 3,300,922 | 
|                                       
|                                       
|                                       
|                                       
|Mortgage-backed
securities              |  |                   | 798,607   |            |  |            | 8,558  |       |  |  | 2,147 |  |  |  | 805,018   | 
|                                        |  |                   |           |            |  |            |        |       |  |  |       |  |  |  |           | 
|                                        |  | $                 | 4,101,874 |            |  |            | 12,503 |       |  |  | 8,437 |  |  |  | 4,105,940 | 
|                                        |  |                   |           |            |  |            |        |       |  |  |       |  |  |  |           | 

The amortized cost and estimated market values of investments and
mortgage-backed securities at December 31, 1999 and 1998 by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

|                              |  |                   |           |                   |  |           |           |       |  |  |           |           |  |  |           |  |  |  |  | 
|----------------------------- |  | ----------------- | --------- | ----------------- |  | --------- | --------- | ----- |  |  | --------- | --------- |  |  | --------- |  |  |  |  | 
|                              |  | December 31, 1999 |           | December 31, 1998
|                              |  |                   |           |                  
|                              |  |                   |           |                   |  | Estimated |           |       |  |  |           | Estimated
|                              |  |                   |           |                   |  | Market    |           |       |  |  |           | Market   
|                              |  | Cost              |           | Value             |  | Cost      |           | Value
|                              |  |                   |           |                   |  |           |           |      
|Due in one to five years      |  | $                 | 1,201,820 |                   |  |           | 1,160,916 |       |  |  | 703,246   |           |  |  | 705,362   | 
|                             
|                             
|                             
|                             
|Due in over five to ten years |  |                   | 500,000   |                   |  |           | 469,267   |       |  |  | 1,600,021 |           |  |  | 1,594,465 | 
|                             
|                             
|                             
|                             
|Due in over ten years         |  |                   | 1,000,000 |                   |  |           | 904,367   |       |  |  | 1,000,000 |           |  |  | 1,001,095 | 
|                             
|                             
|                             
|                             
|Mortgage-backed
securities    |  |                   | 602,109   |                   |  |           | 588,405   |       |  |  | 798,607   |           |  |  | 805,018   | 
|                              |  |                   |           |                   |  |           |           |       |  |  |           |           |  |  |           | 
|                              |  | $                 | 3,303,929 |                   |  |           | 3,122,955 |       |  |  | 4,101,874 |           |  |  | 4,105,940 | 
|                              |  |                   |           |                   |  |           |           |       |  |  |           |           |  |  |           | 

The amortized cost and market values of investment securities by call date
at December 31, 1999 are as follows:

|                             |  |           |           |        |  |  |           | 
|---------------------------- |  | --------- | --------- | ------ |  |  | --------- | 
|                             |  | Amortized |           | Market
|                             |  | Cost      |           | Value 
|                             |  |           |           |       
|Callable in one year or less |  | $         | 2,701,820 |        |  |  | 2,534,550 | 
|                             |  |           |           |        |  |  |           | 

- 16 -



---



Proceeds and resulting gains and losses realized from sale of investments
and mortgage-backed securities for years ended December 31, 1998 were as
follows:

|                             |  |          |         |       |  |        |        |          |  |  |   |  |  |     |        | 
|---------------------------- |  | -------- | ------- | ----- |  | ------ | ------ | -------- |  |  | - |  |  | --- | ------ | 
|                             |  |          |         |       |  |        |        |          |  |  |   |  |  | Net
|                             |  | Gross    |         | Gross |  | Gross  |        | Realized
|                             |  | Proceeds |         | Gains |  | Losses |        | Gain    
|                             |  |          |         |       |  |        |        |         
|Year ended December 31, 1998 |  | $        | 608,813 |       |  |        | 11,648 |          |  |  |  |  |  |     | 11,648 | 
|                             |  |          |         |       |  |        |        |          |  |  |   |  |  |     |        | 

There were no sales of investments or mortgage-backed securities for the
years ended December 31, 1999 and 1997.

The amortized cost and estimated fair values of collateralized mortgage
obligations held to maturity are as follows:

|                                    |  |                   |           |            |  |            |        |       |  |  |       |  |  |  |           |  |  |  |  | 
|----------------------------------- |  | ----------------- | --------- | ---------- |  | ---------- | ------ | ----- |  |  | ----- |  |  |  | --------- |  |  |  |  | 
|                                    |  | December 31, 1998
|                                    |  |                  
|                                    |  |                   |           |            |  | Gross      |        | Gross
|                                    |  | Amortized         |           | Unrealized |  | Unrealized |        | Fair 
|                                    |  | Cost              |           | Gains      |  | Losses     |        | Value
|                                    |  |                   |           |            |  |            |        |      
|Collateralized
mortgage obligations |  | $                 | 5,925,580 |            |  |            | 68,405 |       |  |  | 1,710 |  |  |  | 5,992,275 | 
|                                    |  |                   |           |            |  |            |        |       |  |  |       |  |  |  |           | 

The amortized cost and estimated market values of collateralized mortgage
obligations held to maturity at December 31, 1998 by contractual maturity
are shown below. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

|                         |  |                   |           |       |  |           |           |  |  |  |  | 
|------------------------ |  | ----------------- | --------- | ----- |  | --------- | --------- |  |  |  |  | 
|                         |  | December 31, 1998
|                         |  |                  
|                         |  |                   |           |       |  | Estimated
|                         |  |                   |           |       |  | Market   
|                         |  | Cost              |           | Value
|                         |  |                   |           |      
|Due in five to ten years |  | $                 | 1,473,563 |       |  |           | 1,476,281 | 
|                        
|                        
|                        
|                        
|Due in over twenty years |  |                   | 4,452,017 |       |  |           | 4,515,994 | 
|                         |  |                   |           |       |  |           |           | 
|                         |  | $                 | 5,925,580 |       |  |           | 5,992,275 | 
|                         |  |                   |           |       |  |           |           | 

On July 1, 1999, in accordance with SFAS No. 137, the Bancorp reclassified
all collateralized mortgage obligations that were held to maturity to
available for sale. The amortized cost and estimated market values of these
obligations on the date of reclassification were $4,598,234 and $4,629,543
respectively.

- 17 -



---





| |  | The amortized cost and estimated fair values of collateralized mortgage
obligations available for sale are as follows:
| |  | ----------------------------------------------------------------------------------------------------------------------

|                                    |  |                   |           |            |  |            |        |       |  |  |        |  |  |  |           |  |  |  |  | 
|----------------------------------- |  | ----------------- | --------- | ---------- |  | ---------- | ------ | ----- |  |  | ------ |  |  |  | --------- |  |  |  |  | 
|                                    |  | December 31, 1999
|                                    |  |                  
|                                    |  |                   |           |            |  | Gross      |        | Gross
|                                    |  | Amortized         |           | Unrealized |  | Unrealized |        | Fair 
|                                    |  | Cost              |           | Gains      |  | Losses     |        | Value
|                                    |  |                   |           |            |  |            |        |      
|Collateralized
mortgage obligations |  | $                 | 4,158,756 |            |  |            | 28,387 |       |  |  | 16,442 |  |  |  | 4,170,701 | 
|                                    |  |                   |           |            |  |            |        |       |  |  |        |  |  |  |           | 

|                                    |  |                   |           |            |  |            |        |       |  |  |        |  |  |  |           |  |  |  |  | 
|----------------------------------- |  | ----------------- | --------- | ---------- |  | ---------- | ------ | ----- |  |  | ------ |  |  |  | --------- |  |  |  |  | 
|                                    |  | December 31, 1998
|                                    |  |                  
|                                    |  |                   |           |            |  | Gross      |        | Gross
|                                    |  | Amortized         |           | Unrealized |  | Unrealized |        | Fair 
|                                    |  | Cost              |           | Gains      |  | Losses     |        | Value
|                                    |  |                   |           |            |  |            |        |      
|Collateralized
mortgage obligations |  | $                 | 2,166,515 |            |  |            | 30,000 |       |  |  | 17,383 |  |  |  | 2,179,132 | 
|                                    |  |                   |           |            |  |            |        |       |  |  |        |  |  |  |           | 

At December 31, 1999 and 1998, all collateralized mortgage obligations
available for sale are due after twenty years. Expected maturities will
differ from contractual maturities because borrowers may generally prepay
obligations without prepayment penalties.

Proceeds and resulting gains and losses realized from sale of collateralized
mortgage obligations for years ended December 31, 1999 were as follows:

|                             |  |          |           |       |  |        |        |          |  |  |        |  |  |     |       | 
|---------------------------- |  | -------- | --------- | ----- |  | ------ | ------ | -------- |  |  | ------ |  |  | --- | ----- | 
|                             |  |          |           |       |  |        |        |          |  |  |        |  |  | Net
|                             |  | Gross    |           | Gross |  | Gross  |        | Realized
|                             |  | Proceeds |           | Gains |  | Losses |        | Gain    
|                             |  |          |           |       |  |        |        |         
|Year ended December 31, 1999 |  | $        | 2,344,782 |       |  |        | 22,500 |          |  |  | 17,658 |  |  |     | 4,842 | 
|                             |  |          |           |       |  |        |        |          |  |  |        |  |  |     |       | 

There were no sales of collateralized mortgage obligations for the years
ended December 31, 1998 and 1997.

- 18 -



---





|3. |  | Loans Receivable:
|-- |  | -----------------

Loans receivable, including loans held for sale, are summarized as follows:

|                                                        |                            |   |            |          |      |  |            |          |  
|------------------------------------------------------- | -------------------------- | - | ---------- | -------- | ---- |  | ---------- | -------- | -
|                                                        |                            |   | 1999       |          | 1998
|                                                        |                            |   |            |          |     
|Mortgage loans secured by one to
four family residences |                            | $ | 55,482,547 |          |      |  | 34,345,002 |         
|                                                       
|                                                       
|                                                       
|                                                       
|Multi-family residential real estate                    |                            |   | 6,325,387  |          |      |  | 1,560,682  |         
|                                                       
|                                                       
|                                                       
|                                                       
|Home equity line of credit                              |                            |   | 2,087,039  |          |      |  | 1,175,446  |         
|                                                       
|                                                       
|                                                       
|                                                       
|Consumer                                                |                            |   | 1,743,083  |          |      |  | 1,719,060  |         
|                                                       
|                                                       
|                                                       
|                                                       
|Unsecured consumer line of credit                       |                            |   | 123,149    |          |      |  | 121,278    |         
|                                                       
|                                                       
|                                                       
|                                                       
|Passbook loans                                          |                            |   | 123,055    |          |      |  | 43,348     |         
|                                                        |                            |   |            |          |      |  |            |         
|                                                        |                            |   | 65,884,260 |          |      |  | 38,964,816 |         
|                                                        |                            |   |            |          |      |  |            |         
|Add/(Less):                                            
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Loans in process           |   |            | (864,203 | )    |  |            | (352,635 | )
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Allowance for loan loss    |   |            | (90,264  | )    |  |            | (66,472  | )
|                                                       
|                                                       
|                                                       
|                                                       
|                                                        | Deferred loan costs (fees) |   |            | 115,274  |      |  |            | (17,647  | )
|                                                        |                            |   |            |          |      |  |            |         
|                                                        |                            |   | (839,193   | )        |      |  | (436,754   | )       
|                                                        |                            |   |            |          |      |  |            |         
|                                                        |                            | $ | 65,045,067 |          |      |  | 38,528,062 |         
|                                                        |                            |   |            |          |      |  |            |         

At December 31, 1999 and 1998, adjustable rate loans approximated
$48,837,000 and $18,489,000.

As discussed previously, the Bancorp has sold certain whole loans in the
secondary market, retaining servicing on the loans sold. Loans sold and
serviced for others totaled approximately $11,804,000 and $7,695,000 at
December 31, 1999 and 1998.

Mortgage servicing rights of $54,056 and $92,009 were capitalized in 1999
and 1998. The fair value of mortgage servicing rights approximates the
current book value as of December 31, 1999 and 1998. Amortization of
mortgage servicing rights was $32,545 and $9,974 for the years 1999 and 1998
respectively.

Activity in the allowance for loan losses is as follows:

|                                |  |                         |         |      |  |      |         |   |  |  |        |   |  |  |  | 
|------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  |  | ------ | - |  |  |  | 
|                                |  | Year Ended December 31,
|                                |  |                        
|                                |  | 1999                    |         | 1998 |  | 1997
|                                |  |                         |         |      |  |     
|Beginning balance               |  | $                       | 66,472  |      |  |      | 66,341  |   |  |  | 57,770 |  
|                               
|                               
|                               
|                               
|Provision for loan losses       |  |                         | 40,000  |      |  |      | 17,500  |   |  |  | 10,500 |  
|                               
|                               
|                               
|                               
|Charge off of loans             |  |                         | (22,397 | )    |  |      | (21,195 | ) |  |  | (2,963 | )
|                               
|                               
|                               
|                               
|Recoveries of prior
charge-offs |  |                         | 6,189   |      |  |      | 3,826   |   |  |  | 1,034  |  
|                                |  |                         |         |      |  |      |         |   |  |  |        |  
|                                |  | $                       | 90,264  |      |  |      | 66,472  |   |  |  | 66,341 |  
|                                |  |                         |         |      |  |      |         |   |  |  |        |  

- 19 -



---



Loans to officers and directors totaled $1,040,255 and $817,840 as of
December 31, 1999 and 1998, respectively. An analysis of loan activity for
the years ended December 31, 1999 and 1998 follows:

|                               |  |      |           |      |  |  |          |  
|------------------------------ |  | ---- | --------- | ---- |  |  | -------- | -
|                               |  | 1999 |           | 1998
|                               |  |      |           |     
|Outstanding balance, beginning |  | $    | 817,840   |      |  |  | 828,879  |  
|                              
|                              
|                              
|                              
|New loans issued               |  |      | 457,500   |      |  |  | 156,000  |  
|                              
|                              
|                              
|                              
|Officer terminated employment  |  |      | (113,342  | )    |  |  |         |  
|                              
|                              
|                              
|                              
|Repayments                     |  |      | (121,743  | )    |  |  | (167,039 | )
|                               |  |      |           |      |  |  |          |  
|Outstanding balance, ending    |  | $    | 1,040,255 |      |  |  | 817,840  |  
|                               |  |      |           |      |  |  |          |  

On January 21, 2000, the Bancorp sold approximately $5.5 million of
adjustable rate loans in the secondary market. The Bancorp retained
servicing on these loans.



|4. |  | Property and Equipment:
|-- |  | -----------------------

Property and equipment at December 31, 1999 and 1998 is summarized by major
classification as follows:

|                         |  |      |         |      |  |  |         | 
|------------------------ |  | ---- | ------- | ---- |  |  | ------- | 
|                         |  | 1999 |         | 1998
|                         |  |      |         |     
|Land and building        |  | $    | 324,828 |      |  |  | 324,828 | 
|                        
|                        
|                        
|                        
|Furniture and equipment  |  |      | 370,524 |      |  |  | 338,424 | 
|                        
|                        
|                        
|                        
|Leasehold improvements   |  |      | 245,461 |      |  |  | 244,466 | 
|                         |  |      |         |      |  |  |         | 
|                         |  |      | 940,813 |      |  |  | 907,718 | 
|                        
|                        
|                        
|                        
|Accumulated depreciation |  |      | 541,438 |      |  |  | 343,916 | 
|                         |  |      |         |      |  |  |         | 
|                         |  | $    | 399,375 |      |  |  | 563,802 | 
|                         |  |      |         |      |  |  |         | 

In 1993, the Bancorp constructed an addition with a cost of $126,938 to the
building that it is currently leasing as its main office. The Bancorp has
an agreement with the lessor that if the lease is terminated, the Bancorp
will receive from the lessor a set dollar amount based on a ten year
declining schedule. The building addition at the end of the lease becomes
the property of the lessor. During 1999, the Bancorp received notice that
it would be required to vacate the main office. This resulted in a one-time
after tax charge to earnings of approximately $91,000 during 1999. The net
book value of the addition and related leasehold improvements at December
31, 1999 was $22,000 which is the amount that the Bancorp will receive when
the office is vacated in March 2000.

- 20 -



---



Effective July 1, 1995, the Bancorp entered into a lease with Procter and
Gamble for its main office facilities that expired December 31, 1999. Rent
expense for the years ended December 31, 1999, 1998 and 1997 was $22,986,
$22,986 and $22,977 respectively. The lease was extended until March 31,
2000. Future minimum lease payments on the lease at December 31, 1999 are
$8,916.

The Bancorp has entered into a sub-lease agreement with an entity providing
financial planning services to individuals. The lease agreement provides
for variable lease payments based on the operating results of the lessee.
During 1999, 1998 and 1997 sub-lease income recognized by the Bancorp was
$2,872, $2,216 and $15,084 respectively.



|5. |  | Deposits
|-- |  | --------

Deposit amounts are summarized as follows:

|                              |                 |   |              |           |      |  |          |      |      |  |            |           |          |  |      |      |  |  |  |  | 
|----------------------------- | --------------- | - | ------------ | --------- | ---- |  | -------- | ---- | ---- |  | ---------- | --------- | -------- |  | ---- | ---- |  |  |  |  | 
|                              |                 |   | December 31,
|                              |                 |   |             
|                              |                 |   | 1999         |           | 1998
|                              |                 |   |              |           |     
|                              |                 |   |              |           |      |  | Weighted |      |      |  |            |           | Weighted
|                              |                 |   |              |           |      |  | Average  |      |      |  |            |           | Average 
|                              |                 |   | Balance      |           | Rate |  | Balance  |      | Rate
|                              |                 |   |              |           |      |  |          |      |     
|Statement savings             |                 | $ | 5,083,888    |           |      |  | 3.00     | %    |      |  | 4,593,450  |           |          |  | 2.49 | %   
|                             
|                             
|                             
|                             
|NOW and money market accounts |                 |   | 5,050,234    |           |      |  | 2.42     |      |      |  | 5,283,359  |           |          |  | 2.47 |     
|                             
|                             
|                             
|                             
|Other                         |                 |   | 44,972       |           |      |  | 1.99     |      |      |  | 49,165     |           |          |  | 1.99 |     
|                              |                 |   |              |           |      |  |          |      |      |  |            |          
|                              |                 |   | 10,179,094   |           |      |  |          |      |      |  | 9,925,974  |          
|                              |                 |   |              |           |      |  |          |      |      |  |            |          
|Certificates:                
|                             
|                             
|                             
|                             
|                              | Three months    |   |              | 236,662   |      |  |          | 4.58 |      |  |            | 158,175   |          |  |      | 4.04 | 
|                             
|                             
|                             
|                             
|                              | Six months      |   |              | 1,517,117 |      |  |          | 5.06 |      |  |            | 1,418,436 |          |  |      | 4.94 | 
|                             
|                             
|                             
|                             
|                              | Nine months     |   |              | 280,121   |      |  |          | 4.70 |      |  |            | 812,418   |          |  |      | 5.18 | 
|                             
|                             
|                             
|                             
|                              | One year        |   |              | 5,755,343 |      |  |          | 5.10 |      |  |            | 7,103,414 |          |  |      | 5.52 | 
|                             
|                             
|                             
|                             
|                              | Fifteen months  |   |              | 995,341   |      |  |          | 5.16 |      |  |            | 610,084   |          |  |      | 5.14 | 
|                             
|                             
|                             
|                             
|                              | Eighteen months |   |              | 3,539,151 |      |  |          | 5.25 |      |  |            | 1,604,948 |          |  |      | 5.57 | 
|                             
|                             
|                             
|                             
|                              | Two years       |   |              | 7,051,838 |      |  |          | 5.67 |      |  |            | 3,058,632 |          |  |      | 5.76 | 
|                             
|                             
|                             
|                             
|                              | Three years     |   |              | 1,970,140 |      |  |          | 5.61 |      |  |            | 627,840   |          |  |      | 5.76 | 
|                             
|                             
|                             
|                             
|                              | Four years      |   |              | 305,202   |      |  |          | 5.39 |      |  |            | 484,584   |          |  |      | 7.04 | 
|                             
|                             
|                             
|                             
|                              | Five years      |   |              | 7,605,773 |      |  |          | 6.10 |      |  |            | 7,262,233 |          |  |      | 6.26 | 
|                              |                 |   |              |           |      |  |          |      |      |  |            |           |          |  |      |     
|                              |                 |   | 29,256,688   |           |      |  | 5.55     |      |      |  | 23,140,764 |           |          |  | 5.76 |     
|                              |                 |   |              |           |      |  |          |      |      |  |            |           |          |  |      |     
|                              |                 | $ | 39,435,782   |           |      |  | 4.82     | %    |      |  | 33,066,738 |           |          |  | 4.78 | %   
|                              |                 |   |              |           |      |  |          |      |      |  |            |           |          |  |      |     

- 21 -



---



Scheduled maturities of certificate accounts are as follows:

|                |  |      |            |      |  |  |            | 
|--------------- |  | ---- | ---------- | ---- |  |  | ---------- | 
|                |  | 1999 |            | 1998
|                |  |      |            |     
|Within one year |  | $    | 15,881,108 |      |  |  | 13,938,759 | 
|               
|               
|               
|               
|1 - 2 years     |  |      | 6,514,058  |      |  |  | 5,484,191  | 
|               
|               
|               
|               
|2 - 3 years     |  |      | 2,457,142  |      |  |  | 1,559,468  | 
|               
|               
|               
|               
|Over 3 years    |  |      | 4,404,380  |      |  |  | 2,158,346  | 
|                |  |      |            |      |  |  |            | 
|                |  | $    | 29,256,688 |      |  |  | 23,140,764 | 
|                |  |      |            |      |  |  |            | 

Interest expense on deposits is summarized as follows:

|                        |  |              |           |      |  |      |           |  |  |  |           |  |  |  |  | 
|----------------------- |  | ------------ | --------- | ---- |  | ---- | --------- |  |  |  | --------- |  |  |  |  | 
|                        |  | December 31,
|                        |  |             
|                        |  | 1999         |           | 1998 |  | 1997
|                        |  |              |           |      |  |     
|Statement savings       |  | $            | 130,790   |      |  |      | 120,336   |  |  |  | 130,228   | 
|                       
|                       
|                       
|                       
|NOW and Money Market    |  |              | 127,156   |      |  |      | 142,188   |  |  |  | 144,080   | 
|                       
|                       
|                       
|                       
|Certificates of Deposit |  |              | 1,473,374 |      |  |      | 1,293,259 |  |  |  | 1,212,966 | 
|                        |  |              |           |      |  |      |           |  |  |  |           | 
|                        |  | $            | 1,731,320 |      |  |      | 1,555,783 |  |  |  | 1,487,274 | 
|                        |  |              |           |      |  |      |           |  |  |  |           | 

The aggregate amount of certificates of deposit in denominations of $100,000
or more was $4,767,203 and $4,224,476 at December 31, 1999 and 1998.



|6. |  | Federal Home Loan Bank Advances:
|-- |  | --------------------------------

The Bancorp has advances from the Federal Home Loan Bank. These advances
range in maturity from ninety days to 15 years with interest rates of
between 4.75% and 6.59%. At December 31, 1999, the Bancorps advances were
comprised of $21,850,000 of adjustable rate advances and $9,288,664 of fixed
rate advances. Future maturities on the advances from the Federal Home Loan
Bank are as follows:

|                 |  |   |            | 
|---------------- |  | - | ---------- | 
|2000             |  | $ | 9,932,567  | 
|                
|                
|                
|                
|2001             |  |   | 7,581,696  | 
|                
|                
|                
|                
|2002             |  |   | 8,081,063  | 
|                
|                
|                
|                
|2003             |  |   | 79,969     | 
|                
|                
|                
|                
|2004             |  |   | 68,417     | 
|                
|                
|                
|                
|Subsequent years |  |   | 5,394,952  | 
|                 |  |   |            | 
|                 |  | $ | 31,138,664 | 
|                 |  |   |            | 

The advances are collateralized by a blanket pledge of residential mortgage
loans held by the Bancorp. The Bancorp has also pledged its Federal Home
Loan Bank stock and mortgage notes with unpaid principal balances of
approximately $46.7 million for future advances.

- 22 -



---





|7. |  | Income Taxes:
|-- |  | -------------

The Bancorp had qualified under provisions of the Internal Revenue Code,
which permitted the Bancorp to deduct from taxable income an allowance for
bad debts based on a percentage of taxable income before such deduction.
The Tax Reform Act of 1969 gradually reduced this deduction to 40% for years
beginning in 1979. The Tax Reform Act of 1986 reduced this deduction to 8%
beginning in 1988.

A bill repealing the thrift bad debt reserve was signed into law and was
effective for taxable years beginning after December 31, 1995. All savings
banks and thrifts will be required to account for tax reserves for bad debts
in the same manner as banks. Such entities with assets less than $500
million will be required to maintain a moving average experience based
reserve and no longer will be able to calculate a reserve based on a
percentage of taxable income.

Tax reserves accumulated after 1987 will automatically be subject to
recapture. The recapture will occur in equal amounts over six years
beginning in 1997 and can be deferred up to two years, depending on the
level of loans originated.

As a result of the tax law change, the Bancorp is expected to ultimately
recapture approximately $61,000 of tax reserves accumulated after 1987,
resulting in addition tax payments of $21,000. The recapture of these
reserves will not result in any significant income statement effect to the
Bancorp. Pre-1988 tax reserves will not have to be recaptured unless the
thrift or successor institution liquidates, redeems shares or pays a
dividend in excess of earnings and profits.

Appropriated and unappropriated retained earnings at December 31, 1999
included earnings of approximately $1,096,000 representing such bad debt
deductions for which no provision for federal income taxes has been made.
In the future, if the Bancorp does not meet the federal income tax
requirements necessary to permit it to deduct an allowance for bad debts,
the Bancorp will be subject to federal income tax at the then current
corporate rate.

An analysis of the provision (benefit) for federal income taxes is as
follows:

|         |  |                          |         |      |  |      |         |  |  |  |         |  |  |  |  | 
|-------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  |  | ------- |  |  |  |  | 
|         |  | Years Ended December 31,
|         |  |                         
|         |  | 1999                     |         | 1998 |  | 1997
|         |  |                          |         |      |  |     
|Current  |  | $                        | (20,457 | )    |  |      | 111,690 |  |  |  | 108,019 | 
|        
|        
|        
|        
|Deferred |  |                          | 5,980   |      |  |      | 8,500   |  |  |  | 11,000  | 
|         |  |                          |         |      |  |      |         |  |  |  |         | 
|         |  | $                        | (14,477 | )    |  |      | 120,190 |  |  |  | 119,019 | 
|         |  |                          |         |      |  |      |         |  |  |  |         | 

- 23 -



---



At December 31, 1999 and 1998, the deferred components of the Bancorps
income tax liabilities, as included in the statements of financial condition
are summarized as follows:

|                           |                                                       |                                |                           |         |         |         |         |         |         |        | 
|-------------------------- | ----------------------------------------------------- | ------------------------------ | ------------------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------ | 
|                           |                                                       |                                |                           |         | 1999    |         | 1998   
|                           |                                                       |                                |                           |         |         |         |        
|Deferred tax liabilities: 
|                          
|                          
|                          
|                          
|                           | FHLB stock dividends                                  |                                | $                         | 147,100 |         |         |         | 120,100 |        
|                          
|                          
|                          
|                          
|                           | Bad debt reserve                                      |                                |                           | 13,700  |         |         |         |        |        
|                          
|                          
|                          
|                          
|                           | Net unrealized gains on available
for sale securities |                                |                           |        |         |         |         | 5,672   |        
|                          
|                          
|                          
|                          
|                           | Depreciation                                          |                                |                           | 3,000   |         |         |         | 3,000   |        
|                           |                                                       |                                |                           |         |         |         |         |        
|                           |                                                       | Gross deferred tax liabilities |                           |         | 163,800 |         |         |         | 128,772 |       
|                           |                                                       |                                |                           |         |         |         |         |        
|Deferred tax assets:      
|                          
|                          
|                          
|                          
|                           | Bad debt reserve                                      |                                |                           | 36,200  |         |         |         | 2,000   |        
|                          
|                          
|                          
|                          
|                           | Deferred loan fees                                    |                                |                           | 3,100   |         |         |         | 4,300   |        
|                          
|                          
|                          
|                          
|                           | Amortization of stock awards                          |                                |                           | 2,700   |         |         |         | 3,500   |        
|                          
|                          
|                          
|                          
|                           | ESOP expense                                          |                                |                           | 6,120   |         |         |         | 4,800   |        
|                          
|                          
|                          
|                          
|                           | Net unrealized loss on available
for sale securities  |                                |                           | 57,470  |         |         |         |        |        
|                          
|                          
|                          
|                          
|                           | Other                                                 |                                |                           | 3,200   |         |         |         | 2,000   |        
|                           |                                                       |                                |                           |         |         |         |         |        
|                           |                                                       |                                | Gross deferred tax assets |         |         | 108,790 |         |         |         | 16,600 | 
|                           |                                                       |                                |                           |         |         |         |         |        
|Valuation allowance        |                                                       |                                |                          |         |         |         |        |        
|                           |                                                       |                                |                           |         |         |         |         |        
|Net deferred tax liability |                                                       | $                              | 55,010                    |         |         |         | 112,172 |        
|                           |                                                       |                                |                           |         |         |         |         |        

The Bancorps income tax expense (benefit) differed from the statutory
federal rate of 34% as follows:

|                                            |  |                          |         |      |  |      |         |   |  |  |         |   |  |  |  | 
|------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  |  | ------- | - |  |  |  | 
|                                            |  | Years Ended December 31,
|                                            |  |                         
|                                            |  | 1999                     |         | 1998 |  | 1997
|                                            |  |                          |         |      |  |     
|Tax expense at statutory rate               |  | $                        |        |      |  |      | 113,713 |   |  |  | 106,864 |  
|                                           
|                                           
|                                           
|                                           
|Utilization of net operating loss
carryback |  |                          | (23,300 | )    |  |      |        |   |  |  |        |  
|                                           
|                                           
|                                           
|                                           
|Increase in deferred tax rate               |  |                          |        |      |  |      |        |   |  |  | 6,907   |  
|                                           
|                                           
|                                           
|                                           
|Permanent book/tax differences              |  |                          | 8,737   |      |  |      | 10,396  |   |  |  |        |  
|                                           
|                                           
|                                           
|                                           
|Other                                       |  |                          | 86      |      |  |      | (3,919  | ) |  |  | 5,248   |  
|                                            |  |                          |         |      |  |      |         |   |  |  |         |  
|                                            |  | $                        | (14,477 | )    |  |      | 120,190 |   |  |  | 119,019 |  
|                                            |  |                          |         |      |  |      |         |   |  |  |         |  
|Effective tax rate                          |  |                          | 21.5    | %    |  |      | 35.9    | % |  |  | 37.9    | %
|                                            |  |                          |         |      |  |      |         |   |  |  |         |  

- 24 -



---





|8. |  | Stockholders Equity:
|-- |  | ---------------------

In accordance with regulatory requirements, the Bancorp established a
special Liquidation Account for the benefit of certain savings account
holders in an amount equal to the regulatory capital of the Bancorp as of
July 1996 of $3.8 million. In the event of a complete liquidation (and only
in such event), each eligible savings account holder will be entitled to
receive a liquidation distribution from the liquidation account in the
amount of the then current adjusted balance of savings accounts held before
any liquidation distribution may be made with respect to capital stock.
Except for the repurchase of stock and payment of dividends by the Bancorp,
the existence of the liquidation account will not restrict the use or
application of such related earnings.

The Bancorp may not declare or pay a cash dividend on, or repurchase any of,
its capital stock if the effect thereof would cause the regulatory capital
of the Bancorp to be reduced below either the amount required for the
liquidation account or the regulatory capital requirements imposed by the
FDIC.

On May 27, 1999, the Bancorp declared a dividend distribution of one right
(the Rights) for each share of common stock to shareholders of record on
that date. Each Right represents the right to purchase one one-hundredth of
a share of the Series A Junior Participating Preferred Stock upon the terms
and subject to conditions set forth in the Rights Agreement. The exercise
price of the Rights initially shall be $54 per Right and the redemption
price shall be $.01 per Right. The Rights expire in ten years. Initially,
4,047 shares of Series A Junior Participating Preferred Stock have been
reserved for issuance upon exercise of the Rights.



|9. |  | Capital Requirements:
|-- |  | ---------------------

The Savings Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory  and possibly
additional discretionary  actions by regulators that, if undertaken, could
have a direct material effect on the Savings Bank financial statements. The
regulations require the Savings Bank to meet specific capital adequacy
guidelines that involve quantitative measures of the Savings Bank
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Savings Bank capital classification is
also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Savings Bank to maintain minimum amounts and ratios (set forth
in the table below) of Tier I capital (as defined in the regulations) to
total average assets (as defined), and minimum ratios of Tier I and total
capital (as defined) to risk-weighted assets (as defined). To be considered
adequately capitalized (as defined) under the regulatory framework for
prompt corrective action, the Savings Bank must maintain minimum Tier I
leverage and Tier II risk-based ratios as set forth in the table. The
Savings Banks actual capital amounts and ratios are also presented in the
table.

- 25 -



---



|        |  |                   |           |        |  |          |           |      |  |      |           |        |  |          |      |  |  |  |     |  |  |  |  | 
|------- |  | ----------------- | --------- | ------ |  | -------- | --------- | ---- |  | ---- | --------- | ------ |  | -------- | ---- |  |  |  | --- |  |  |  |  | 
|        |  | December 31, 1999
|        |  |                  
|        |  |                   |           |        |  | Required |           |      |  |      |           | Actual |  | Required
|        |  | Amount            |           | Amount |  | Excess   |           | Rate |  | Rate
|        |  |                   |           |        |  |          |           |      |  |     
|Tier I  |  | $                 | 4,739,000 |        |  |          | 2,960,000 |      |  |      | 1,779,000 |        |  |          | 6.4  |  |  |  | 4.0 | 
|       
|       
|       
|       
|Tier II |  |                   | 4,829,000 |        |  |          | 3,208,000 |      |  |      | 1,621,000 |        |  |          | 12.0 |  |  |  | 8.0 | 

|        |  |                   |           |        |  |          |           |      |  |      |           |        |  |          |      |  |  |  |     |  |  |  |  | 
|------- |  | ----------------- | --------- | ------ |  | -------- | --------- | ---- |  | ---- | --------- | ------ |  | -------- | ---- |  |  |  | --- |  |  |  |  | 
|        |  | December 31, 1999
|        |  |                  
|        |  |                   |           |        |  | Required |           |      |  |      |           | Actual |  | Required
|        |  | Amount            |           | Amount |  | Excess   |           | Rate |  | Rate
|        |  |                   |           |        |  |          |           |      |  |     
|Tier I  |  | $                 | 6,364,000 |        |  |          | 2,206,000 |      |  |      | 4,158,000 |        |  |          | 11.5 |  |  |  | 4.0 | 
|       
|       
|       
|       
|Tier II |  |                   | 6,430,000 |        |  |          | 2,129,000 |      |  |      | 4,301,000 |        |  |          | 24.2 |  |  |  | 8.0 | 



|10. |  | Retirement Plans:
|--- |  | -----------------

401(k) Savings Plan

The Bancorp has a 401(k) savings plan that covers substantially all
employees. The employees may elect to make contributions pursuant to a
salary reduction agreement upon meeting age and length of service
requirements. The Bancorp annually determines the contribution based on the
percentage of the employees plan compensation or employee pay contributed to
the Plan. The Bancorp matches the employee contribution to the plan up to
6% of employee compensation. Total contributions by the Bancorp for the
years ended December 31, 1999, 1998 and 1997 were $11,455, $4,386, and
$7,574 respectively.

Employee Stock Ownership Plan

Concurrent with the conversion from the mutual savings bank form to the
stock holding company form of organization, in July 1996, the Bancorp
established an Employee Stock Ownership Plan (ESOP) which provides
retirement benefits for substantially all employees who have completed one
year of service and have attained age 21. The ESOP initially acquired
34,054 shares of common stock in the conversion offering. The funds used by
the ESOP to purchase the stock were provided by a loan from the Bancorp that
will be repaid by contributions to the ESOP by the company in the future.
Management intends to allocate these shares to eligible employees accounts
over a ten-year period from the establishment of the plan. Expense for
  shares committed to be allocated during 1999, 1998 and 1997 was $62,270,
$69,457 and $63,270. Shares committed to be allocated as of December 31,
1999, 1998 and 1997 totaled 3,798, 4,043 and 4,246 respectively. Remaining
unearned shares at December 31, 1999 were 20,847.

- 26 -



---



1997 Stock Incentive Plan

During 1997, the shareholders approved the 1997 Incentive Plan. Under the
provisions of the Plan, 59,594 shares of common stock can be reserved for
awards. The maximum number of shares reserved for award as Stock Awards is
17,027 shares. These shares were acquired during 1997 and held in treasury.
Shares awarded to employees and non-employee directors under the plan
totaled 7,308, 9,524 and 9,353 at December 31, 1999, 1998 and 1997
respectively. A recipient earns plan share awards over a 5-year period.
The Bancorp recognized $21,087, $22,083 and $9,268 amortization expense
relating to these stock awards during 1999, 1998 and 1997, respectively.

The Plan also allows for 42,567 shares to be reserved for incentive and
non-statutory stock options. Grantees are awarded 10-year options to
acquire shares at the market price on the date the option is granted in five
equal installments commencing one year after the date of the grant. All
options have an exercise price between $14.75 and $17.25.

Set forth below is activity under the plan.

|                                             |  |      |        |      |  |      |        |   |  |  |        | 
|-------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | 
|                                             |  | 1999 |        | 1998 |  | 1997
|                                             |  |      |        |      |  |     
|Options outstanding at beginning
of the year |  |      | 31,161 |      |  |      | 30,735 |   |  |  |       | 
|                                            
|                                            
|                                            
|                                            
|Granted                                      |  |      | 639    |      |  |      | 3,619  |   |  |  | 30,735 | 
|                                            
|                                            
|                                            
|                                            
|Canceled/forfeited                           |  |      | (8,303 | )    |  |      | (3,193 | ) |  |  |       | 
|                                            
|                                            
|                                            
|                                            
|Exercised                                    |  |      | (255   | )    |  |      |       |   |  |  |       | 
|                                             |  |      |        |      |  |      |        |   |  |  |        | 
|Options outstanding at end
of the year       |  |      | 23,242 |      |  |      | 31,161 |   |  |  | 30,735 | 
|                                             |  |      |        |      |  |      |        |   |  |  |        | 

All shares have an exercise price between $14.75 and $17.25. At December
31, 1999, 9,365 shares were exercisable under this plan.

The Bancorp applies Accounting Principles Board (APB) Opinion 25,
Accounting for Stock Issued to Employees, and related Interpretations in
accounting for its option plans. Accordingly, no compensation cost has been
recognized. Had compensation cost for the Bancorps stock-based
compensation plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of FASB
Statement 123, Accounting for Stock-Based Compensation, the effect on net
income and earnings per share would have been reduced to pro forma amounts
indicated below:

- 27 -



---



|                                 |                                 |  |      |         |      |  |      |         |  |  |  |         | 
|-------------------------------- | ------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                 |                                 |  | 1999 |         | 1998 |  | 1997
|                                 |                                 |  |      |         |      |  |     
|Net income (loss):              
|                                
|                                
|                                
|                                
|                                 | As reported                     |  | $    | (52,791 | )    |  |      | 214,259 |  |  |  | 195,289 | 
|                                
|                                
|                                
|                                
|                                 | Additional compensation expense |  |      | 13,807  |      |  |      | 29,863  |  |  |  | 8,554   | 
|                                
|                                
|                                
|                                
|                                 | Pro forma                       |  |      | (66,598 | )    |  |      | 184,396 |  |  |  | 186,735 | 
|                                
|                                
|                                
|                                
|Basic earnings (loss) per share:
|                                
|                                
|                                
|                                
|                                 | As reported                     |  | $    | (0.18   | )    |  |      | 0.59    |  |  |  | 0.51    | 
|                                
|                                
|                                
|                                
|                                 | Pro forma                       |  |      | (0.22   | )    |  |      | 0.51    |  |  |  | 0.49    | 

The fair value and pro forma income information calculated for options
granted is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions for
1999, 1998, and 1997 respectively: expected volatility of .29 percent, .32
percent, and .12 percent, risk free interest rates of 6.31 percent, 5.64
percent, and 6.18 percent, and for all years, expected dividend of $0.20 per
share and expected lives of ten years.



|11. |  | Fair Value of Financial Instruments:
|--- |  | ------------------------------------

The estimated fair values of the Bancorps financial instruments at December
31, 1999 and 1998 were as follows:

|                       |                                             |               |                 |            |            |            |       |            |            |            |       |            |            |            |  |            |            |            |  |  |  |  | 
|---------------------- | ------------------------------------------- | ------------- | --------------- | ---------- | ---------- | ---------- | ----- | ---------- | ---------- | ---------- | ----- | ---------- | ---------- | ---------- |  | ---------- | ---------- | ---------- |  |  |  |  | 
|                       |                                             |               |                 |            | 1999       |            | 1998 
|                       |                                             |               |                 |            |            |            |      
|                       |                                             |               |                 |            | Carrying   |            | Fair  |            | Carrying   |            | Fair 
|                       |                                             |               |                 |            | Value      |            | Value |            | Value      |            | Value
|                       |                                             |               |                 |            |            |            |       |            |            |            |      
|Financial assets:     
|                      
|                      
|                      
|                      
|                       | Cash and certificates of
deposit            |               | $               | 931,321    |            |            |       | 931,321    |            |            |       | 2,533,367  |            |            |  | 2,533,367  |           
|                      
|                      
|                      
|                      
|                       | Investments and mortgage-
backed securities |               |                 | 3,122,955  |            |            |       | 3,122,955  |            |            |       | 4,105,940  |            |            |  | 4,105,940  |           
|                      
|                      
|                      
|                      
|                       | Collateralized mortgage
obligations         |               |                 | 4,170,701  |            |            |       | 4,170,701  |            |            |       | 8,104,712  |            |            |  | 8,171,407  |           
|                      
|                      
|                      
|                      
|                       | Loans receivable, net                       |               |                 | 65,045,067 |            |            |       | 63,291,000 |            |            |       | 38,528,062 |            |            |  | 38,954,000 |           
|                      
|                      
|                      
|                      
|                       | Accrued interest receivable                 |               |                 | 437,807    |            |            |       | 437,807    |            |            |       | 269,029    |            |            |  | 269,029    |           
|                      
|                      
|                      
|                      
|Financial liabilities:
|                      
|                      
|                      
|                      
|                       |                                             | Deposits:    
|                      
|                      
|                      
|                      
|                       |                                             |               | Demand accounts |            |            | 10,179,094 |       |            |            | 10,179,094 |       |            |            | 9,925,974  |  |            |            | 9,925,974  | 
|                      
|                      
|                      
|                      
|                       |                                             |               | Certificates    |            |            | 29,256,688 |       |            |            | 29,111,000 |       |            |            | 23,140,764 |  |            |            | 23,406,000 | 
|                      
|                      
|                      
|                      
|                       |                                             | FHLB advances |                 |            | 31,138,664 |            |       |            | 31,194,000 |            |       |            | 14,440,006 |            |  |            | 14,392,000 |           

- 28 -



---





|12. |  | Summarized Financial Information of the Parent Company:
|--- |  | -------------------------------------------------------

The following condensed financial statements summarize the financial
position of Lenox Bancorp Inc. as of December 31, 1999 and 1998, and the
results of its operations for the year then ended.

LENOX BANCORP INC.

Statements of Financial Condition

|                                      |                                          |                                                 |                   |         |            |         |           |           |           |         | 
|------------------------------------- | ---------------------------------------- | ----------------------------------------------- | ----------------- | ------- | ---------- | ------- | --------- | --------- | --------- | ------- | 
|                                      |                                          |                                                 |                   |         | 1999       |         | 1998     
|                                      |                                          |                                                 |                   |         |            |         |          
|Assets:                              
|                                     
|                                     
|                                     
|                                     
|                                      | Cash                                     |                                                 | $                 | 55,075  |            |         |           | 707,314   |          
|                                     
|                                     
|                                     
|                                     
|                                      | Investment in Lenox Savings Bank         |                                                 |                   | 715,085 |            |         |           | 2,375,573 |          
|                                     
|                                     
|                                     
|                                     
|                                      | Accounts receivable and prepaid expenses |                                                 |                   | 117,711 |            |         |           | 64,917    |          
|                                      |                                          |                                                 |                   |         |            |         |           |          
|                                      |                                          | $                                               | 887,871           |         |            |         | 3,147,804 |          
|                                      |                                          |                                                 |                   |         |            |         |           |          
|Liabilities and stockholders equity:
|                                     
|                                     
|                                     
|                                     
|                                      | Liabilities:                            
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Accounts payable and
accrued expenses           |                   | $       | 20,160     |         |           |           | 5,757     |        
|                                     
|                                     
|                                     
|                                     
|                                      | Stockholders equity:                   
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Common stock                                    |                   |         |           |         |           |           |          |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Additional paid in capital                      |                   |         | 3,703,535  |         |           |           | 3,700,905 |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Retained earnings                               |                   |         | 156,797    |         |           |           | 264,802   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Less unearned ESOP shares                       |                   |         | (208,470   | )       |           |           | (240,463  | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Shares acquired for Stock Plan                  |                   |         | (217,012   | )       |           |           | (235,469  | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Less 140,649 and 21,264 shares
held in treasury |                   |         | (2,567,139 | )       |           |           | (347,728  | )      
|                                      |                                          |                                                 |                   |         |            |         |           |          
|                                      |                                          | $                                               | 887,871           |         |            |         | 3,147,804 |          
|                                      |                                          |                                                 |                   |         |            |         |           |          
|                                      |                                          | Statements of Operations                       
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Interest income                                 |                   | $       | 28,282     |         |           |           | 32,277    |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Equity in earnings of Lenox Savings             |                   |         | 39,512     |         |           |           | 244,125   |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Professional fees                               |                   |         | (110,260   | )       |           |           | (57,926   | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Management fee                                  |                   |         | (6,000     | )       |           |           |          |        
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Other operating expenses                        |                   |         | (51,775    | )       |           |           | (14,491   | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Franchise taxes                                 |                   |         | (50        | )       |           |           | (5,126    | )      
|                                     
|                                     
|                                     
|                                     
|                                      |                                          | Income tax benefit                              |                   |         | 47,500     |         |           |           | 15,400    |        
|                                      |                                          |                                                 |                   |         |            |         |           |          
|                                      |                                          |                                                 | Net income (loss) |         | $          | (52,791 | )         |           |           | 214,259 | 
|                                      |                                          |                                                 |                   |         |            |         |           |          

- 29 -



---





|13. |  | Lenox Mortgage Corporation:
|--- |  | ---------------------------

In accordance with regulatory requirements, the following summary of
financial information of Lenox Mortgage Corporation for the year ended
December 31, 1999, is presented:

LENOX MORTGAGE CORPORATION

Statement of Financial Condition

|                                      |         |                                   |                                                       |   |         |         |  
|------------------------------------- | ------- | --------------------------------- | ----------------------------------------------------- | - | ------- | ------- | -
|                                      | Assets:
|                                     
|                                     
|                                     
|                                     
|                                      |         | Cash                              |                                                       | $ | 6,685   |        
|                                     
|                                     
|                                     
|                                     
|                                      |         | Certificate of deposit            |                                                       |   | 185,496 |        
|                                     
|                                     
|                                     
|                                     
|                                      |         | Loans held for sale               |                                                       |   | 164,450 |        
|                                     
|                                     
|                                     
|                                     
|                                      |         | Property and equipment, net       |                                                       |   | 24,791  |        
|                                     
|                                     
|                                     
|                                     
|                                      |         | Prepaid expenses and other assets |                                                       |   | 20,119  |        
|                                      |         |                                   |                                                       |  
|                                      |         | $                                 | 401,541                                               |  
|                                      |         |                                   |                                                       |  
|Liabilities and stockholders equity:
|                                     
|                                     
|                                     
|                                     
|                                      |         | Liabilties:                      
|                                     
|                                     
|                                     
|                                     
|                                      |         |                                   | Line of credit                                        |   | $       | 164,527 |  
|                                     
|                                     
|                                     
|                                     
|                                      |         |                                   | Advance payments by borrowers
for taxes and insurance |   |         | 354     |  
|                                     
|                                     
|                                     
|                                     
|                                      |         |                                   | Accrued expenses                                      |   |         | 25,048  |  
|                                      |         |                                   |                                                       |  
|                                      |         |                                   | 189,929                                               |  
|                                      |         |                                   |                                                       |  
|                                      |         | Stockholders equity:            
|                                     
|                                     
|                                     
|                                     
|                                      |         |                                   | Common stock                                          |   |         | 250,000 |  
|                                     
|                                     
|                                     
|                                     
|                                      |         |                                   | Retained earnings (deficit)                           |   |         | (38,388 | )
|                                      |         |                                   |                                                       |  
|                                      |         |                                   | 211,612                                               |  
|                                      |         |                                   |                                                       |  
|                                      |         | $                                 | 401,541                                               |  
|                                      |         |                                   |                                                       |  

Statement of Operations

|                   |                       |          |         |        |         |  
|------------------ | --------------------- | -------- | ------- | ------ | ------- | -
|Revenues:         
|                  
|                  
|                  
|                  
|                   | Interest income       |          | $       | 2,714  |        
|                  
|                  
|                  
|                  
|                   | Gain on sale of loans |          |         | 25,371 |        
|                  
|                  
|                  
|                  
|Interest expense   |                       |          | (344    | )     
|                  
|                  
|                  
|                  
|Operating expenses |                       |          | (85,529 | )     
|                  
|                  
|                  
|                  
|Income tax benefit |                       |          | 19,400  |       
|                   |                       |          |         |       
|                   |                       | Net loss |         | $      | (38,388 | )
|                   |                       |          |         |       

- 30 -



---



|  |  |                                                                                                                                      
|- |  | -------------------------------------------------------------------------------------------------------------------------------------
|a |  | Summary of significant accounting policies:                                                                                          
| 
| 
| 
| 
|  |  | The accounting policies followed in the preparation of the
financial statements of Lenox Mortgage Corporation are
included in Note 1.
| 
| 
| 
| 
|b |  | Intercompany transactions:                                                                                                           
| 
| 
| 
| 
|  |  | Intercompany transactions with Lenox Savings Bank have been
eliminated in consolidation.                                             
| 
| 
| 
| 
|c |  | Lenox Savings Banks investment in Lenox Mortgage Corporation
consists of:                                                           

|                                                |  |   |         |  
|----------------------------------------------- |  | - | ------- | -
|Common stock, 100 shares
issued and outstanding |  | $ | 250,000 |  
|                                               
|                                               
|                                               
|                                               
|Retained earnings (deficit)                     |  |   | (38,388 | )
|                                                |  |   |         |  
|                                                |  | $ | 211,612 |  
|                                                |  |   |         |  



|14. |  | Commitments and Contingencies:
|--- |  | ------------------------------

The Bancorp is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of their
customers including commitments to extend credit. Such commitments involve,
to varying degrees, elements of credit and interest-rate risk in excess of
the amount recognized in the statement of financial condition. The contract
or notional amounts of the commitments reflect the extent of the Bancorps
involvement in such financial instruments.

The Bancorps exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Bancorp uses the same credit policies in making commitments and conditional
obligations as those utilized for on-balance-sheet instruments.

The following schedule lists commitments and off-balance-sheet items at
December 31, 1999 and 1998.

|     |  |             |           |                 |  |  |           | 
|---- |  | ----------- | --------- | --------------- |  |  | --------- | 
|     |  | Loan        |           | Unused         
|     |  | Commitments |           | Lines of Credit
|     |  |             |           |                
|1999 |  | $           | 771,000   |                 |  |  | 2,314,156 | 
|    
|    
|    
|    
|1998 |  |             | 1,209,200 |                 |  |  | 1,864,610 | 

- 31 -



---



In the opinion of management, the loan commitments equaled or exceeded
prevalent market interest rates as of December 31, 1999, and all commitments
will be funded via cash flow from operations and existing excess liquidity.
Of the total loan commitments, at December 31, 1999, $30,000 were fixed rate
residential loans. Management expects no losses as a result of these
transactions.

At December 31, 1999, the Bancorp had entered into a contract to purchase a
building to be used as its main office for $545,000 of which a $5,000
deposit had been made. In addition, a contract was entered into for
construction work at the new facility that will total approximately $175,000
in improvements.



|15. |  | Earnings Per Share:
|--- |  | -------------------

Earnings per share for the years ended December 31, 1999, 1998 and 1997 is
calculated as follows:

|                                                            |                   |   |                                      |   |               |  |           |       |  |   |       |   |  |  |  |  | 
|----------------------------------------------------------- | ----------------- | - | ------------------------------------ | - | ------------- |  | --------- | ----- |  | - | ----- | - |  |  |  |  | 
|                                                            |                   |   | For the Year Ended December 31, 1999
|                                                            |                   |   |                                     
|                                                            |                   |   | Income                              
|                                                            |                   |   | (Loss)                               |   | Shares        |  | Per-Share
|                                                            |                   |   | (Numerator)                          |   | (Denominator) |  | Amount   
|                                                            |                   |   |                                      |   |               |  |          
|Basic EPS                                                  
|Loss available to common
stockholders                       |                   | $ | (52,791                              | ) |               |  | 299,555   |       |  | $ | (0.18 | )
|                                                            |                   |   |                                      |   |               |  |           |       |  |   |       |  
|Effect of Dilutive Securities:                             
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Stock plan awards |   |                                      |  |               |  |           | 6,266 | 
|                                                           
|                                                           
|                                                           
|                                                           
|                                                            | Stock options     |   |                                      |  |               |  |           | 1,771 | 
|                                                            |                   |   |                                      |   |               |  |           |      
|Diluted EPS                                                
|Loss available to common
stockholders + assumed
conversions |                   | $ | (52,791                              | ) |               |  | 307,592   |       |  | $ | (0.17 | )
|                                                            |                   |   |                                      |   |               |  |           |       |  |   |       |  

- 32 -



---



|                                                              |                   |   |                                      |   |               |  |           |       |  |   |      |  |  |  |  |  | 
|------------------------------------------------------------- | ----------------- | - | ------------------------------------ | - | ------------- |  | --------- | ----- |  | - | ---- |  |  |  |  |  | 
|                                                              |                   |   | For the Year Ended December 31, 1998
|                                                              |                   |   |                                     
|                                                              |                   |   | Income                               |   | Shares        |  | Per-Share
|                                                              |                   |   | (Numerator)                          |   | (Denominator) |  | Amount   
|                                                              |                   |   |                                      |   |               |  |          
|Basic EPS                                                    
|Income available to common
stockholders                       |                   | $ | 214,259                              |   |               |  | 362,430   |       |  | $ | 0.59 | 
|                                                              |                   |   |                                      |   |               |  |           |       |  |   |      | 
|Effect of Dilutive Securities:                               
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Stock plan awards |   |                                      |  |               |  |           | 8,563 | 
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Stock options     |   |                                      |  |               |  |           | 3,899 | 
|                                                              |                   |   |                                      |   |               |  |           |      
|Diluted EPS                                                  
|Income available to common
stockholders + assumed
conversions |                   | $ | 214,259                              |   |               |  | 374,892   |       |  | $ | 0.57 | 
|                                                              |                   |   |                                      |   |               |  |           |       |  |   |      | 

|                                                              |                   |   |                                      |       |               |  |           |       |  |   |      |  |  |  |  |  | 
|------------------------------------------------------------- | ----------------- | - | ------------------------------------ | ----- | ------------- |  | --------- | ----- |  | - | ---- |  |  |  |  |  | 
|                                                              |                   |   | For the Year Ended December 31, 1997
|                                                              |                   |   |                                     
|                                                              |                   |   | Income                               |       | Shares        |  | Per-Share
|                                                              |                   |   | (Numerator)                          |       | (Denominator) |  | Amount   
|                                                              |                   |   |                                      |       |               |  |          
|Basic EPS                                                    
|Income available to common
stockholders                       |                   | $ | 195,289                              |       |               |  | 383,487   |       |  | $ | 0.51 | 
|                                                              |                   |   |                                      |       |               |  |           |       |  |   |      | 
|Effect of Dilutive Securities:                               
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Stock plan awards |   |                                      |      |               |  |           | 4,177 | 
|                                                             
|                                                             
|                                                             
|                                                             
|                                                              | Stock options     |   |                                      | 1,892 |               |  |           | 792   | 
|                                                              |                   |   |                                      |       |               |  |           |      
|Diluted EPS                                                  
|Income available to common
stockholders + assumed
conversions |                   | $ | 197,181                              |       |               |  | 388,456   |       |  | $ | 0.51 | 
|                                                              |                   |   |                                      |       |               |  |           |       |  |   |      | 

- 33 -



---





|16. |  | Selected Quarterly Financial Data (unaudited):
|--- |  | ----------------------------------------------

Summarized quarterly financial information (in thousands) for 1999 and 1998
is as follows:

|                                     |                                                     |   |         |     |   |  |               |     |  |  |         |      |   |  |          |     |   |  |  |  | 
|------------------------------------ | --------------------------------------------------- | - | ------- | --- | - |  | ------------- | --- |  |  | ------- | ---- | - |  | -------- | --- | - |  |  |  | 
|                                     |                                                     |   | 1999   
|                                     |                                                     |   |        
|                                     |                                                     |   |         |     |   |  | Quarter Ended
|                                     |                                                     |   |         |     |   |  |              
|                                     |                                                     |   | 3/31/99 |     |   |  | 6/30/99       |     |  |  | 9/30/99 |      |   |  | 12/31/99 |    
|                                     |                                                     |   |         |     |   |  |               |     |  |  |         |      |   |  |          |    
|Interest income                      |                                                     | $ | 913     |     |   |  | 1,043         |     |  |  | 1,196   |      |   |  | 1,306    |    
|                                    
|                                    
|                                    
|                                    
|Interest expense                     |                                                     |   | 598     |     |   |  | 657           |     |  |  | 810     |      |   |  | 874      |    
|                                     |                                                     |   |         |     |   |  |               |     |  |  |         |      |   |  |          |    
|                                     | Net interest income                                 |   |         | 315 |   |  |               | 386 |  |  |         | 386  |   |  |          | 432 |  
|                                    
|                                    
|                                    
|                                    
|Provision for loan losses            |                                                     |   | 9       |     |   |  | 9             |     |  |  | 10      |      |   |  | 12       |    
|                                     |                                                     |   |         |     |   |  |               |     |  |  |         |      |   |  |          |    
|                                     | Net interest income after
provision for loan losses |   |         | 306 |   |  |               | 377 |  |  |         | 376  |   |  |          | 420 |  
|                                    
|                                    
|                                    
|                                    
|Other income                         |                                                     |   | 54      |     |   |  | 76            |     |  |  | 56      |      |   |  | 50       |    
|                                    
|                                    
|                                    
|                                    
|Other expenses                       |                                                     |   | 373     |     |   |  | 402           |     |  |  | 541     |      |   |  | 466      |    
|                                     |                                                     |   |         |     |   |  |               |     |  |  |         |      |   |  |          |    
|                                     | Income (loss) before provision
for income taxes     |   |         | (13 | ) |  |               | 51  |  |  |         | (109 | ) |  |          | 4   |  
|                                    
|                                    
|                                    
|                                    
|Provision (benefit) for income taxes |                                                     |   | (3      | )   |   |  | 20            |     |  |  | (35     | )    |   |  | 4        |    
|                                     |                                                     |   |         |     |   |  |               |     |  |  |         |      |   |  |          |    
|                                     | Net income (loss)                                   |   | $       | (10 | ) |  |               | 31  |  |  |         | (74  | ) |  |          | (0  | )
|                                     |                                                     |   |         |     |   |  |               |     |  |  |         |      |   |  |          |    
|Basic earnings (loss) per share      |                                                     | $ | (0.03   | )   |   |  | 0.09          |     |  |  | (0.24   | )    |   |  | 0.00     |    
|                                     |                                                     |   |         |     |   |  |               |     |  |  |         |      |   |  |          |    
|Diluted earnings (loss) per share    |                                                     | $ | (0.03   | )   |   |  | 0.09          |     |  |  | (0.23   | )    |   |  | 0.00     |    
|                                     |                                                     |   |         |     |   |  |               |     |  |  |         |      |   |  |          |    

|                           |                                                     |   |         |     |  |  |               |     |  |  |         |     |  |  |          |     |  |  |  |  | 
|-------------------------- | --------------------------------------------------- | - | ------- | --- |  |  | ------------- | --- |  |  | ------- | --- |  |  | -------- | --- |  |  |  |  | 
|                           |                                                     |   | 1998   
|                           |                                                     |   |        
|                           |                                                     |   |         |     |  |  | Quarter Ended
|                           |                                                     |   |         |     |  |  |              
|                           |                                                     |   | 3/31/98 |     |  |  | 6/30/98       |     |  |  | 9/30/98 |     |  |  | 12/31/98 |    
|                           |                                                     |   |         |     |  |  |               |     |  |  |         |     |  |  |          |    
|Interest income            |                                                     | $ | 968     |     |  |  | 971           |     |  |  | 961     |     |  |  | 969      |    
|                          
|                          
|                          
|                          
|Interest expense           |                                                     |   | 568     |     |  |  | 601           |     |  |  | 602     |     |  |  | 597      |    
|                           |                                                     |   |         |     |  |  |               |     |  |  |         |     |  |  |          |    
|                           | Net interest income                                 |   |         | 400 |  |  |               | 370 |  |  |         | 359 |  |  |          | 372 | 
|                          
|                          
|                          
|                          
|Provision for loan losses  |                                                     |   |        |     |  |  | 5             |     |  |  | 5       |     |  |  | 7        |    
|                           |                                                     |   |         |     |  |  |               |     |  |  |         |     |  |  |          |    
|                           | Net interest income after
provision for loan losses |   |         | 400 |  |  |               | 365 |  |  |         | 354 |  |  |          | 365 | 
|                          
|                          
|                          
|                          
|Other income               |                                                     |   | 63      |     |  |  | 61            |     |  |  | 70      |     |  |  | 97       |    
|                          
|                          
|                          
|                          
|Other expenses             |                                                     |   | 364     |     |  |  | 346           |     |  |  | 357     |     |  |  | 374      |    
|                           |                                                     |   |         |     |  |  |               |     |  |  |         |     |  |  |          |    
|                           | Income before provision
for income taxes            |   |         | 99  |  |  |               | 80  |  |  |         | 67  |  |  |          | 88  | 
|                          
|                          
|                          
|                          
|Provision for income taxes |                                                     |   | 34      |     |  |  | 27            |     |  |  | 23      |     |  |  | 36       |    
|                           |                                                     |   |         |     |  |  |               |     |  |  |         |     |  |  |          |    
|                           | Net income                                          |   | $       | 65  |  |  |               | 53  |  |  |         | 44  |  |  |          | 52  | 
|                           |                                                     |   |         |     |  |  |               |     |  |  |         |     |  |  |          |    
|Basic earnings per share   |                                                     | $ | 0.18    |     |  |  | 0.15          |     |  |  | 0.12    |     |  |  | 0.14     |    
|                           |                                                     |   |         |     |  |  |               |     |  |  |         |     |  |  |          |    
|Diluted earnings per share |                                                     | $ | 0.17    |     |  |  | 0.14          |     |  |  | 0.12    |     |  |  | 0.14     |    
|                           |                                                     |   |         |     |  |  |               |     |  |  |         |     |  |  |          |    

Earnings per share for the first three quarters of 1999 and 1998 has been
adjusted for the effect of unallocated ESOP shares and unearned stock award
  shares.

- 34 -



---



Officers and Directors

Officers

Virginia M. Deisch
President and Chief Executive Officer

Diane P. Hunt
Vice President, Chief Operating Officer and Secretary

Directors

|                      |  |                    
|--------------------- |  | -------------------
|Henry E. Brown(1)     |  | Robert R. Keller(1)
|                     
|                     
|                     
|                     
|Chair of the Board    |  | Director           
|                     
|                     
|                     
|                     
|Gail R. Behymer(1)    |  | John C. Lame(1)    
|                     
|                     
|                     
|                     
|Director              |  | Director           
|                     
|                     
|                     
|                     
|Virginia M. Deisch(1) |  | Reba St. Clair(1)  
|                     
|                     
|                     
|                     
|Director              |  | Director           
|                     
|                     
|                     
|                     
|Curtis L. Jackson(1) 
|                     
|                     
|                     
|                     
|Director             



---

|(1) |  | Also directors of Lenox Savings Bank.
|--- |  | -------------------------------------

Corporate Information

Stock Price Information

Lenox Bancorp, Inc.s common stock trades over the counter through the National
Daily Quotation Service Pink Sheet published by the National Quotation Bureau,
Inc. under the symbol: LNXC. The table below shows the reported high and low bid
information for the common stock and per share dividends declared during the
periods indicated and per share dividends declared.

|                     |  |      |       |     |  |           |       |  |  |   |      | 
|-------------------- |  | ---- | ----- | --- |  | --------- | ----- |  |  | - | ---- | 
|                     |  | High |       | Low |  | Dividends
|                     |  |      |       |     |  |          
|Fourth Quarter, 1999 |  | $    | 15.50 |     |  | $         | 14.63 |  |  | $ | 0.05 | 
|                    
|                    
|                    
|                    
|Third Quarter, 1999  |  |      | 16.75 |     |  |           | 14.25 |  |  |   | 0.05 | 
|                    
|                    
|                    
|                    
|Second Quarter, 1999 |  |      | 18.51 |     |  |           | 15.00 |  |  |   | 0.05 | 
|                    
|                    
|                    
|                    
|First Quarter, 1999  |  |      | 19.00 |     |  |           | 16.00 |  |  |   | 0.05 | 
|                    
|Fourth Quarter, 1998 |  |      | 17.75 |     |  |           | 14.00 |  |  |   | 0.05 | 
|                    
|                    
|                    
|                    
|Third Quarter, 1998  |  |      | 18.25 |     |  |           | 13.00 |  |  |   | 0.05 | 
|                    
|                    
|                    
|                    
|Second Quarter, 1998 |  |      | 19.50 |     |  |           | 17.25 |  |  |   | 0.05 | 
|                    
|                    
|                    
|                    
|First Quarter, 1998  |  |      | 21.00 |     |  |           | 16.25 |  |  |   | 0.05 | 

Lenox Bancorp, Inc. had approximately 383 shareholders at
December 31, 1999 based upon shareholders of record and an
estimate of shares held in nominee names.

Investor Information:

A copy of Lenox Bancorp, Inc.s annual report on Form 10-KSB, to be filed with
the Securities and Exchange Commission, is available without charge by writing
our Corporate Office:



| | Virginia M. Deisch
President and Chief Executive Officer
4730 Montgomery Road
Norwood, Ohio
(513) 531-8655
| | ----------------------------------------------------------------------------------------------------------

Shareholders, investors, and analysts interested in additional information may
contact the above.

Annual Meeting of Shareholders

The Annual Meeting of the Shareholders of Lenox
Bancorp, Inc. will be held at 2:30 p.m., May 24,
2000 at:



| | Lenox Savings Bank
4730 Montgomery Road
Norwood, Ohio 45212
| | -----------------------------------------------------------

All Shareholders are cordially invited to attend.

Stock Transfer Agent and Registrar

Inquiries regarding stock transfer,
registration, lost certificates or changes in name and address should be
directed to the stock transfer agent and registrar by writing:



| | Fifth Third Bank
30 Fountain Square Plaza
Cincinnati, Ohio 45263
Attention: Shareholder Services
| | ------------------------------------------------------------------------------------------------

Corporate Counsel



| | Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
| | ---------------------------------------------------------------------------------

Independent Auditors



| | Clark, Schaefer, Hackett & Co.
105 East Fourth Street, Suite 1600
Cincinnati, Ohio 45202
| | ----------------------------------------------------------------------------------------